Vanguard is to change benchmarks for three sector funds and their corresponding ETF Shares: Vanguard Telecommunication Services Index Fund, Vanguard Consumer Discretionary Index Fund, and Vanguard Information Technology Index Fund.
The changes will be consistent with S&P Dow Jones and MSCI’s planned revisions announced in November 2017 to the funds’ respective target benchmarks under its Global Industry Classification Standards methodology.
“We’re pleased with MSCI’s changes as we believe the reconstituted benchmarks provide investors with a better representation of the sectors they track,” says Vanguard Chief Investment Officer Greg Davis. “We have determined that these changes and our approach to adopting the new benchmarks are in the best interests of shareholders.”
Vanguard’s Equity Index Group will carefully manage the transition. Beginning in the second quarter of 2018, the funds will track custom transition benchmarks. These interim benchmarks are designed to ensure the changes are implemented in the most transparent, cost-efficient way for the funds’ investors, while also reducing tracking error and mitigating market impact. The funds will track these custom benchmarks until MSCI’s index changes are complete, at which time the Funds will revert back to their applicable MSCI benchmarks.
Vanguard has successfully employed transition benchmarks in the past to execute benchmark changes including the 2016 transition of the Vanguard Emerging Markets Stock Index Fund to the FTSE Emerging Markets All Cap China A Inclusion Index, and Vanguard Developed Markets Index Fund’s 2015 changes to the FTSE Developed All Cap ex US Index benchmark.
The transition to the new benchmarks is not expected to result in material capital gains distributions to shareholders or changes to the funds’ expense ratios.