In a recent press release, Vanguard declared that it is shifting the indexes for two of its popular total market funds. The duo represent a combined $32 billion, so the move could definitely impact more than a handful of investors out there.
The changes come to us in VTI, which previously tracked the MSCI US Broad Market Index, and VXUS, which tracked the MSCI All Country World ex USA Investable Market Index,. Now, VTI will follow the CRSP US Total Market Index, while VXUS will track the FTSE Global All Cap ex US Index.
Below, we have highlighted a bit more about this shift, and the impacted ETFs, for investors who are either holding these funds, or were considering making a play on these broad products:
CRSP US Total Market Index (CAD-hedged)
Center for Research in Security Prices (:CRSP) is a market capitalization-weighted index comprising returns of large, mid, small, and micro-capitalization stocks. The index is composed of equity securities, common stocks, REITs and business development companies (BDCs based in the U.S. The index has primary listings on NYSE, NYSE MKT, NASDAQ or ARCA).
VANGUARD TOTAL STOCK MARKET ETF (VTI)
Launched in May 2001, the passively managed fund now tracks the performance of the CRSP US Total Market Index. CRSP provides a similar exposure to the ETF’s previous MSCI index and thus does not change the ETF’s primary investment objectives.
The fund has amassed $31.36 billion in assets so far, giving broad exposure to the large cap blend space with more than 3,300 stocks in its basket. The top 10 holdings contribute 15% to the fund, suggesting a modest level of concentration.
The top three holdings include stocks of Apple Inc., Exxon Mobil Corp., and Microsoft Corp. Major contributions sector-wise come from information technology (17.5%), financials (17%), consumer discretionary (12.6%) and healthcare (12.4%).
The fund charges only 5bps in fees and has a very low tracking error of 0.04%. The ETF has R-squared of 98.23 and beta of 0.99 which depicts a strong correlation with the S&P 500 index (See Focus on Earnings with These ETFs).
FTSE Global All Cap ex US Index
The FTSE Global All Cap ex US Index is a market capitalization weighted index and represents the performance of nearly 5,350 constituents across mega, large, small and micro capitalizations in 46 developed and emerging nations excluding the U.S. It is derived from the FTSE Global Equity Index Series (:GEIS).
VANGUARD TOTAL INTERNATIONAL STOCK ETF (VXUS)
Launched in January 2011, the passively managed fund replicated the performance of FTSE Global All Cap ex US Index. The fund with an asset base of $1.65 billion has 6,500 stocks in its basket.
The top 10 holdings contribute 9.2% of total assets with the top 3 spots going to Nestle SA, Royal Dutch Shell plc and HSBC holdings plc. Major regional allotments are made in Europe (43.6%), Pacific (29.3%) and Emerging Markets (19%).
The fund charges only 16 bps in fees, so it does represent a pretty cheap choice. However, investors should note that it is a bit more volatile as compared to the S&P 500 index, as the beta comes in at 1.16.
The Bottom Line
The changes in the benchmark index will have a very minor impact on both of the ETFs described above. There may be a little bit of difference in some of the smaller securities included, while a few stocks may make up slightly more or less for the top part of the fund as well.
Still, any index changes to such major funds are worth noting, especially in such key products which have already attracted so much investor interest already.
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