Vanguard Begins Sector Transition

Changes designed to mitigate impact of pending shift in GICS sectors.
Reviewed by: Staff
Edited by: Staff

Effective Thursday, Vanguard started the transition with its sector funds that will ultimately reflect the imminent changes to the Global Industry Classification Standard (GICS) used by index providers MSCI and S&P Dow Jones Indices. The fund company has changed the name of the fund primarily affected by the adjustment and assigned temporary new indexes to it and two other affected funds.

The changes to GICS are scheduled to become effective Sept. 28, but Vanguard is looking to avoid any sudden changes to its funds. As a result, the Vanguard Telecommunication Services ETF (VOX) (as well as its mutual fund share classes), has changed its name to the Vanguard Communication Services Index Fund, and its index has been changed from the MSCI US Investable Market Telecommunication Services 25/50 Index to the MSCI US Investable Market Communication Services 25/50 Transition Index.

Sector Shuffle

The rechristened communication services sector that GICS is adopting will combine the traditional telecommunications sector with elements pulled from the consumer discretionary and information technology sectors.

As such, the Vanguard Consumer Discretionary ETF (VCR) has ceased to track the MSCI US Investable Market Consumer Discretionary 25/50 Index and now tracks the MSCI US Investable Market Consumer Discretionary 25/50 Transition Index. Similarly, the Vanguard Information Technology ETF (VGT) has adopted the MSCI US Investable Market Information Technology 25/50 Transition Index as its benchmark in a switch from the MSCI US Investable Market Information Technology 25/50 Index.

It should be noted that the index changes for VCR and VGT and their mutual fund share classes are temporary, and the funds will revert to their original indexes once the sector changes to the GICS have been finalized in September.

The transition indexes are designed to minimize costs associated with the changes to the sector structure. Vanguard says the transition is not expected to cause material capital gains distributions or affect the funds’ expense ratios.

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