Vanguard Investments Canada is to change the index tracked by two of its Canadian ETFs on or about 17 September, 2021.
Vanguard US Dividend Appreciation Index ETF (VGG) will change its index to the S&P US Dividend Growers Index from the NASDAQ US Dividend Achievers Select Index.
Vanguard US Dividend Appreciation Index ETF (CAD-hedged) (TSX ticker symbol: VGH) will change its index to the S&P US Dividend Growers Index (CAD-hedged) from the NASDAQ US Dividend Achievers Select Index (CAD-hedged).
The change to each index aligns with the investment objectives and strategies of the ETFs and the ETFs will, following the change, provide unitholders with substantially the same exposure to the asset class to which the ETFs were exposed prior to the change. These ETFs offer exposure to US common stocks of companies with a track record of increasing their dividends over time.
These changes reflect an ongoing due diligence process to give Vanguard’s Canadian investors the best chance for investment success. Based on our continual analysis, Vanguard believes S&P’s approach to dividend investing in these new indices will provide additional benefits to unitholders in the form of greater transparency as well as provide the following new features:
• Free-float adjustments to ensure each index will count only shares that are available to investors. The indices will exclude closely held shares, such as those held by members of a company founder’s family.
• A three-day rebalance window to help manage transaction costs and minimise tracking error. The periodic changes to add, remove, or rebalance the constituent securities in each index will take place over three days instead of one day.
• Buffered yield screens intended to minimixe excessive turnover. At each annual rebalance, all dividend-paying stocks in the investible universe are ranked in order of dividend yield with the highest-yielding at the top. A stock will not be eligible for first-time admission to the index if its dividend yield is in the top 25 per cent. During subsequent rebalances, any stock already in the index may remain unless its yield is in the top 15 per cent.
Based on deep indexing experience and expertise, Vanguard believes investors benefit from indices that are objective, transparent, investable, and representative of the risk and return characteristics of the target market. As such, the firm has developed and adheres to a multi-dimensional process to evaluate and select indices for funds and ETFs.
The suitability of each fund’s index is based on index construction methodology, market coverage, classification criteria, rebalancing schedule, cost, and other standards. Vanguard also regularly assesses index providers to ensure their data integrity processes and risk management practices support their ability to provide the timely, accurate, and high-quality data required to develop and administer indices on an ongoing basis. The firm places a high value on the objectivity, credibility, and independence offered by index providers.