Benchmarks to change for 22 Vanguard index funds and their ETF share classes

October 2, 2012


In an effort to keep long-term expenses low, Vanguard will change benchmarks for nearly two dozen of its index funds.

Six international stock index funds will change to existing FTSE benchmarks and 16 U.S. stock and balanced index funds to benchmarks developed by the University of Chicago's Center for Research in Security Prices (CRSP)—a leading provider of research-quality, historical market data and returns.

The transition from the funds' current benchmarks, which are maintained by MSCI, is expected to be completed over a number of months and will be staggered. "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.

Several of Vanguard's largest and most widely held index funds will change their benchmarks, including:

  • Vanguard Total Stock Market Index Fund and ETF (VTI), which will move from the MSCI U.S Broad Market Index to the CRSP US Total Market Index.
  • Vanguard Emerging Markets Stock Index Fund and ETF (VWO), which will move from the MSCI Emerging Markets Index to the FTSE Emerging Index. To ease the transition of portfolio holdings, the change will occur in two phases with the fund moving temporarily to the FTSE Emerging Transition Index before shifting to the FTSE Emerging Index.

The benchmarks for Vanguard Target Retirement Funds, LifeStrategy Funds, Managed Payout Funds, and other funds-of-funds will also change. For these funds-of-funds, the MSCI All Country World ex USA Investable Market Index and MSCI US Broad Market Index components of the composite indexes will be replaced by the FTSE Global All Cap ex US Index and the CRSP US Total Market Index. Asset allocations for the funds-of-funds will not change.

FTSE: A global index leader

Vanguard has used FTSE indexes since 2003 and now employs the firm's benchmarks for more than 20 index portfolios around the world, representing $26 billion in aggregate assets. "Vanguard is very pleased to expand our deep relationship with FTSE," said Mr. Sauter. "We believe that the FTSE global benchmarks are optimally constructed to reflect the developed and emerging international markets, especially with respect to the classification of South Korea as a developed market."

The six Vanguard international stock index funds with aggregate assets of $170 billion will transition to benchmarks within the FTSE Global Equity Index Series (see the table below). "Today's agreement with Vanguard represents another significant step forward in building our presence in North America and in making FTSE a household name in the marketplace," said Mark Makepeace, chief executive of FTSE. "Our strategy for the FTSE brand is a global one, and we are committed to building long-term, sustainable relationships with all of our clients globally to bring real value to investors."

International funds changing to FTSE benchmarks

FundCurrent benchmarkNew FTSE benchmark
Vanguard European Stock Index Fund and ETF (VGK) MSCI Europe IndexFTSE Developed Europe Index
Vanguard Pacific Stock Index Fund and ETF (VPL) MSCI Pacific IndexFTSE Developed Asia Pacific Index
Vanguard Emerging Markets Stock Index Fund and ETF (VWO)MSCI Emerging Markets IndexFTSE Emerging Index
Vanguard Total International Stock Index Fund and ETF (VXUS)MSCI ACWI ex USA IMI IndexFTSE Global All Cap ex US Index
Vanguard Developed Markets Index FundMSCI EAFE IndexFTSE Developed ex North America Index
Vanguard Tax-Managed International Fund and ETF (VEA)MSCI EAFE IndexFTSE Developed ex North America Index

CRSP: An index innovator

Vanguard will be the first investment management firm to track CRSP's broadly diversified benchmarks that cover the broad U.S. market, market capitalization segments, and styles. The research organization pioneered the development of U.S. stock market databases and has focused on developing its commercial index capabilities in recent years.

CRSP's capitalization-weighted methodology allows holdings to be shared between two indexes through the innovative concept of "packeting," in which an index's holdings in a company with a changing market capitalization is moved in separate stages or packets to the next index through a shared market-cap band between them. This approach lowers turnover in an index by alleviating the need to move a company all at once when its market cap changes, an action that often results in significant market impact and transaction costs.

"CRSP is highly regarded and experienced in the creation of market databases, and its innovative packeting methodology is expected to minimize transaction costs during periodic index rebalancing," said Mr. Sauter.

David Barclay, chief operating officer of CRSP, said, "For more than 50 years, CRSP has been providing research-quality market and index data. The new CRSP Indexes are a logical extension of our core products and demonstrate not only our innovative thinking, but also the depth of our commitment to positively influence practices in the financial arena. The index licensing agreement we have entered into with Vanguard strongly validates our efforts by one of the leading financial services providers in the world."

The CRSP Indexes are owned and operated by CRSP. Vanguard provided funding for CRSP's development costs, contributed ideas regarding index construction best practices, and shared its knowledge and experience regarding the practical issues associated with index fund management.

Domestic funds changing to CRSP benchmarks

FundCurrent MSCI benchmarkProposed CRSP benchmark
Vanguard Total Stock Market Index Fund and ETF (VTI) MSCI US Broad Market IndexCRSP US Total Market Index
Vanguard Institutional Total Stock Market Index FundMSCI US Broad Market IndexCRSP US Total Market Index
Vanguard Balanced Index FundBalanced Composite Index:
(60% MSCI US Broad Market Index and 40% Barclays U.S. Aggregate Flt Adjusted)
Balanced Composite Index:
(60% CRSP US Total Market Index and 40% Barclays U.S. Aggregate Flt Adjusted)
Vanguard Mega Cap 300 Index Fund and ETF (MGC)MSCI US Large Cap 300 IndexCRSP US Mega Cap Index
Vanguard Mega Cap 300 Growth Index Fund and ETF (MGK)MSCI US Large Cap Growth IndexCRSP US Mega Cap Growth Index
Vanguard Mega Cap 300 Value Index Fund and ETF (MGV)MSCI US Large Cap Value IndexCRSP US Mega Cap Value Index
Vanguard Large-Cap Index Fund and ETF (VV)MSCI US Prime Market 750 IndexCRSP US Large Cap Index
Vanguard Growth Index Fund and ETF (VUG)MSCI US Prime Market Growth IndexCRSP US Large Cap Growth Index
Vanguard Value Index Fund and ETF (VTV)MSCI US Prime Market Value IndexCRSP US Large Cap Value Index
Vanguard Mid-Cap Index Fund and ETF (VO)MSCI US Mid Cap 450 IndexCRSP US Mid Cap Index
Vanguard Mid-Cap Growth Index Fund and ETF ((VOT)MSCI US Mid Cap Growth IndexCRSP US Mid Cap Growth Index
Vanguard Mid-Cap Value Index Fund and ETF (VOE)MSCI US Mid Cap Value IndexCRSP US Mid Cap Value Index
Vanguard Small-Cap Index Fund and ETF (VB)MSCI US Small Cap 1750 IndexCRSP US Small Cap Index
Vanguard Small-Cap Growth Index Fund and ETF (VBK)MSCI US Small Cap Growth IndexCRSP US Small Cap Growth Index
Vanguard Small-Cap Value Index Fund and ETF (VBR)MSCI US Small Cap Value IndexCRSP US Small Cap Value Index
VVIF Mid-Cap Index Portfolio

MSCI US Mid Cap 450 IndexCRSP US Mid Cap Index

The benchmark changes will affect all share classes of the 22 funds, including ETFs. No changes are planned for the suites of Vanguard U.S. stock index funds seeking to track benchmarks maintained by Russell and Standard and Poor's , or the 11 Vanguard sector equity funds currently seeking to track MSCI benchmarks.

Significant savings for shareholders over the long term

Mr. Sauter noted that Vanguard and the index providers had struck long-term agreements for the benchmarks providing "cost certainty" in an environment of escalating licensing fees.

"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," he said.

Based on current market conditions, the transition to the new benchmarks is not expected to result in capital gains distributions to the funds' shareholders. The transition will require some turnover of holdings and result in transaction costs. However, Vanguard Equity Investment Group, manager of the index funds, will seek to minimize trading impact through the use of efficient portfolio trading and other strategies developed over many years and used during the periodic rebalancing of indexes.


All asset figures are as of September 30, 2012.

For more information about Vanguard funds, visit or call 800-662-2739 to obtain a prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing. Copies of the final prospectus can be obtained from Vanguard. Please note that a preliminary prospectus is subject to change.

Mutual funds and ETFs are subject to risks, including possible loss of principal. Investments in bond funds are subject to interest rate, credit, and inflation risk. Foreign investing involves additional risks including currency fluctuations and political uncertainty. Bonds of companies in emerging markets are generally more risky than bonds of companies in developed countries. Diversification does not ensure a profit or protect against a loss in a declining market.


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