Vanguard to Change Benchmarks for 3 Stock Dividend Funds

“As part of our ongoing due diligence process, Vanguard determined that new benchmarks would best enable our Dividend Appreciation funds to perform in line with their investment objectives,” said Kaitlyn Caughlin, head of the Vanguard Portfolio Review Department, in a statement. “We believe S&P Dow Jones Indices’ approach to dividend indexing closely aligns with Vanguard’s views, and we are confident that S&P DJI is well-positioned to administer the indexes moving forward.”

The index changes will not affect the funds’ investment objectives, strategies and overall portfolio management processes, nor their expense ratios, according to Vanguard.

Its announcement highlighted key features of the S&P DJI’s benchmarks, which are fully transparent:

• Buffered yield screens intended to minimize excessive turnover. At each annual rebalance, all dividend-paying stocks in the investable universe are ranked in order of dividend yield with the highest-yielding at the top. A stock in the top 25% will not be eligible for first-time admission to the index and a stock whose yield places in the top 15% will not remain during subsequent rebalances.
• Free-float adjustments to ensure each index will count only shares that are available to investors. The new benchmarks exclude closely held shares, such as shares held by members of a company founder’s family.
• A three-day rebalance window to help manage transaction costs and minimize tracking error. Periodic changes to add, remove, or rebalance constituent stocks in each index will occur over three days instead of one.

The latest index changes reflect Vanguard’s regular assessment of 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 indexes on an ongoing basis, the firm says. Vanguard manages $6.1 trillion in global index assets.

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