Vanguard announced Tuesday morning that it plans to change the tracking indices for many of its index funds and ETFs. The Valley Forge, Penn.-based firm said the move will affect 22 index funds, including ETFs.

The asset manager said it plans to transition six international stock index funds to FTSE benchmarks and 16 U.S. stock and balanced index funds to new benchmarks developed by the University of Chicago’s Center for Research in Security Prices (CRSP). The shift is “expected to result in considerable savings for the funds’ shareholders,” Vanguard said.

Vanguard’s ETFs are structured as separate share classes of its index funds.

ETFs affected by the move include Vanguard MSCI Emerging Markets (VWO), Vanguard Total Stock Market (VTI) and Vanguard Small Cap (VB).

The change to Vanguard’s emerging market ETF’s benchmark is notable because the fund competes with iShares MSCI Emerging Markets (EEM) . The funds had tracked the same MSCI index, but Vanguard is moving to a FTSE benchmark. The Vanguard emerging market fund, VWO, is the best-selling ETF in 2012 with inflows of $11.5 billion, according to Index Universe data. EEM has gathered $1.6 billion.

VWO has lower costs with an expense ratio of 0.2% compared with 0.67% for the iShares ETF. [Investors Buying Vanguard Emerging Market ETF]

“The indexes from FTSE and CRSP are well constructed, offer comprehensive coverage of their respective markets, and meet Vanguard’s ‘best practice’ standards for market benchmarks,” said Vanguard Chief Investment Officer Gus Sauter on the index transition. “Equally important, and with our clients’ best interests in mind, we negotiated licensing agreements for these benchmarks that we expect will enable us to deliver significant value to our index fund and ETF shareholders and lower expense ratios over time.”

The transitions will be staggered and are expected to occur collectively over a number of months, Vanguard said. No changes are planned for Vanguard U.S. stock index funds seeking to track Russell and Standard and Poor’s benchmarks, or the 11 Vanguard sector equity funds currently seeking to track MSCI benchmarks. The transition to the new benchmarks is not expected to result in capital gains distributions to the Vanguard funds’ shareholders, according to a press release.

“Are the indexes better? Maybe. Maybe not,” said Daniel Wiener, editor of The Independent Adviser for Vanguard Investors. “But what they are is cheaper—or at least the costs to license the indexes will be cheaper, and faced with its first real competitive threat from the likes of Charles Schwab, which recently cut its own index fund costs to below-Vanguard levels, Vanguard is raising the bar and lowering costs further—or at least it will once the transition is complete.” [Schwab Takes Lead in ETF Price War]

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