Vanguard Outlines Sector Transition Plan

Vanguard Outlines Sector Transition Plan

Indexes underlying three of its sector funds are set to undergo some major changes.
Reviewed by: Staff
Edited by: Staff

Vanguard is taking action to accommodate the scheduled sector changes in the Global Industry Classification Standard used by index providers MSCI and S&P Dow Jones Indices, according to a press release that went out at the end of last week.

GICS is set to undergo a seismic shift with the introduction of the communications services sector, which will encompass not just telecom companies, but internet media companies, mobile gaming app makers, online streaming services, search engines, social media platforms and more.

Transition Benchmarks

The changes, announced in November, will affect three Vanguard index funds and their ETF share classes that track MSCI U.S. sector indexes. The Vanguard Telecommunication Services ETF (VOX), the Vanguard Consumer Discretionary ETF (VCR) and the Vanguard Information Technology ETF (VGT) will all track custom transition benchmarks until the existing MSCI indexes complete their changes.

The telecommunication services sector will become the communication services sector, and in addition to telecom stocks, it will pull companies from the consumer discretionary and technology sectors.

Custom Indexes

The changes to GICS are to be implemented on Friday, Sept. 28. Vanguard said that its three ETFs, which represent a total of $22.8 billion in assets, will adopt their custom transition indexes sometime in the second quarter and will have transitioned entirely by the time MSCI makes the changes to its indexes. At that point, they will once again track their designated benchmarks.

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

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