Vanguard Swaps Out Benchmarks On 4 ETFs

Includes: MGC, VB, VO, VV
by: Tom Lydon

Vanguard, the third largest exchange traded fund player in the U.S. markets, swapped out the MSCI indices on four of its U.S.-listed ETFs to University of Chicago-linked CRSP benchmarks.

On the last day of January, Vanguard announced the change:

  • Vanguard Mega Cap Index ETF (NYSEARCA:MGC) tracks the CRSP US Mega Cap Index, replacing the MSCI US Large Cap 300 Index. Additionally, the fund changed its name from the Vanguard Mega Cap 300 ETF.
  • Vanguard Large-Cap Index ETF (NYSEARCA:VV) tracks the CRSP US Large Cap Index, replacing the MSCI US Prim market 750 Index.
  • Vanguard Mid-Cap Index ETF (NYSEARCA:VO) tracks the CRSP Mid Cap Index, replacing the MSCI US Mid Cap 450 Index.
  • Vanguard Small-Cap Index ETF (NYSEARCA:VB) tracks the CRSP US Small Cap Index, replacing the MSCI US Small Cap 1750 Index.

These will be the first Vanguard ETFs to transition to the CRSP indices. In October 2012, the fund provider announced that it would drop MSCI indices on 22 of its funds in favor of FTSE and CRSP indices.

Vanguard has argued that the changes would help lower costs down the line. For now, the expense ratios on the four ETFs remain the same.

The CRSP methodology differs from other index providers. For instance, CRSP utilizes market-cap percentages, not the number of stocks, in determining boundaries between market-cap segments. Under this methodology, CRSP defines 70% of the largest stocks as mega-cap, while other indices could draw the line at the largest 100, 500 or 1,000 stocks.

Additionally, the index provider tries to prevent front-running by speculators with "packeting" to minimize turnover and transaction costs between market-cap segments and investment styles.

Max Chen contributed to this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.