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Vanguard Announces Changes for Vanguard International Explorer Fund
Remember 2012? That is when Vanguard dumped MSCI as indexer for almost a couple of dozen Vanguard funds because MSCI got too greedy (after its spinoff from MS in 2007) and forgot how Vanguard had nurtured it when it was developing within MS. In 2012, Vanguard switched to then unknown CRSP (origins at U Chicago) for most of these funds and to FTSE for some. I think that Vanguard kept only 1-2 MSCI indexes after 2012.
Now it looks like that MSCI is out of Vanguard's doghouse. Took only 10 years!
This seems to be a little different than 2012. According to Morningstar, Vanguard switched the benchmark index " on 22 index funds and exchange-traded funds in 2012."
In contrast, VINEX is an actively managed fund. The internals (components) of the benchmark are not being used to drive the security selections. Only the performance figures are used, as, well, a benchmark. "Vanguard believes the new benchmark will improve investors’ ability to assess performance relative to peer funds."
Here's an article from 2012 describing the Vanguard move then. It is "premium content" in the Philadelphia Inquirer. But it was written by an AP writer, so it is available for free at Yahoo Finance. Now there's an idea - switching to a different provider to reduce cost. Maybe Vanguard should look into that https://finance.yahoo.com/news/vanguard-move-highlights-little-known-211153486.html
It is not clear whether Vanguard (or any institution) pays simply to compare performance with published benchmarks. This article illustrates the confusion. Its Inquirer headline reads: Looking at Benchmark Licensing Fees, while the AP headline (at least in Yahoo) reads: Vanguard move highlights little-known index costs.
The body of that article starts out with "Index mutual fund investors are a cost-conscious bunch." It goes on about how index funds are cutting costs.
So do the benchmark providers receive remuneration every time someone reprints their performance figures? Does the WSJ pay MSCI, S&P, and all the rest when it reports how much they moved yesterday? Do they have agreements with all the benchmark providers waiving fees? Or is this data in the public domain? I don't know, and I hadn't thought about it before.
Once again, the shift to MSCI means Korea is benchmarked differently. The old benchmark was from S&P that treats Korea as a developed country and gives it more weight in the S&P EPAC SmallCap Index. MSCI still treats Korea as an emerging market. So there's no Korea in the new MSCI EAFE Small Cap Index benchmark (as represented by SCZ).
This won't make any difference in how the fund is managed - as of last April only 1.6% of the fund's assets were invested in Korea, vs. 6.1% in the old S&P benchmark (Sept. data). It will just result in the chosen benchmark being better aligned with the actual fund portfolio.
Good point about payments (none or nominal?) for benchmarks for active funds. For index funds (OEFs, ETFs) & naming, they do have to pay.
Another difference is that MSCI has been slower to raise China weightings (vs FTSE).
Vanguard had a dispute with S&P too over whether the S&P original license applied only to then Vanguard's SP500-related funds (S&P's view), or also to Vanguard's future SP500-related funds (Vanguard's view). This was settled too.
With internal/self-indexing gaining respectability, may be Vanguard will get rid of everybody else to do indexing on its own.
Comments
Remember 2012? That is when Vanguard dumped MSCI as indexer for almost a couple of dozen Vanguard funds because MSCI got too greedy (after its spinoff from MS in 2007) and forgot how Vanguard had nurtured it when it was developing within MS. In 2012, Vanguard switched to then unknown CRSP (origins at U Chicago) for most of these funds and to FTSE for some. I think that Vanguard kept only 1-2 MSCI indexes after 2012.
Now it looks like that MSCI is out of Vanguard's doghouse. Took only 10 years!
In contrast, VINEX is an actively managed fund. The internals (components) of the benchmark are not being used to drive the security selections. Only the performance figures are used, as, well, a benchmark. "Vanguard believes the new benchmark will improve investors’ ability to assess performance relative to peer funds."
Here's an article from 2012 describing the Vanguard move then. It is "premium content" in the Philadelphia Inquirer. But it was written by an AP writer, so it is available for free at Yahoo Finance. Now there's an idea - switching to a different provider to reduce cost. Maybe Vanguard should look into that
https://finance.yahoo.com/news/vanguard-move-highlights-little-known-211153486.html
It is not clear whether Vanguard (or any institution) pays simply to compare performance with published benchmarks. This article illustrates the confusion. Its Inquirer headline reads: Looking at Benchmark Licensing Fees, while the AP headline (at least in Yahoo) reads: Vanguard move highlights little-known index costs.
The body of that article starts out with "Index mutual fund investors are a cost-conscious bunch." It goes on about how index funds are cutting costs.
So do the benchmark providers receive remuneration every time someone reprints their performance figures? Does the WSJ pay MSCI, S&P, and all the rest when it reports how much they moved yesterday? Do they have agreements with all the benchmark providers waiving fees? Or is this data in the public domain? I don't know, and I hadn't thought about it before.
Once again, the shift to MSCI means Korea is benchmarked differently. The old benchmark was from S&P that treats Korea as a developed country and gives it more weight in the S&P EPAC SmallCap Index. MSCI still treats Korea as an emerging market. So there's no Korea in the new MSCI EAFE Small Cap Index benchmark (as represented by SCZ).
This won't make any difference in how the fund is managed - as of last April only 1.6% of the fund's assets were invested in Korea, vs. 6.1% in the old S&P benchmark (Sept. data). It will just result in the chosen benchmark being better aligned with the actual fund portfolio.
Another difference is that MSCI has been slower to raise China weightings (vs FTSE).
Vanguard had a dispute with S&P too over whether the S&P original license applied only to then Vanguard's SP500-related funds (S&P's view), or also to Vanguard's future SP500-related funds (Vanguard's view). This was settled too.
With internal/self-indexing gaining respectability, may be Vanguard will get rid of everybody else to do indexing on its own.