Vanguard CRSP index funds produce low turnover rates in 2014

2014 was the first full year that Vanguard’s suite of U.S.stock index funds were benchmarked to CRSP indexes. In addition, Vanguard offers sets of U.S. exchange-traded funds benchmarked to Russell and S&P indexes.

Interestingly, in 2014 the CRSP index funds had lower turnover rates than the Russell and S&P funds. While one-year data does not signify a trend, the higher turnover rates for Russell and S&P indexes are consistent with the prior five-year levels of turnover in these indexes.

Low turnover rates can lead to lower fund transaction costs and can also help reduce the realization of taxable capital gains.

The fiscal years for the Russell and S&P index funds end in August, while the CRSP  index funds’ fiscal year ends in December.

The funds include the CRSP large cap, mid cap, and small cap index funds, along with the corresponding growth and value funds. The Russell funds comprise the Russell 1000 and R1000 growth and value funds, as well as the Russell 2000 and R2000 growth and value funds. Vanguard does not provided Russell mid-cap funds. The S&P funds are indexed to the S&P 500,  S&P 400, and S&P 600 indexes, as well as to the growth and value indexes for each capitalization band.

As can be seen in the following table, CRSP based index funds consistently ranked as the lowest turnover funds. The low turnover rates are especially notable in the growth and value style indexes.

2014 Turnover rates

Asset class CRSP Russell S&P
Large Cap 3% 7% 3%
Large Growth 9% 18% 23%
Large Value 6% 16% 25%
Mid Cap 11% 14%
Mid Growth 17% 38%
Mid Value 14% 35%
Small Cap 10% 16% 16%
Small Growth 26% 35% 44%
Small Value 12% 36% 32%

The factor most likely behind these lower turnover rates is the technique of “packeting” which is an exclusive methodological feature of the CRSP index suite. Packeting is a procedure  which is applied to stock migration across both capitalization and style dimensions. Once a stock migrates out of transition band, a packet of 50% of the security is shifted. If the security stays beyond the outer threshold in the following period, the remaining 50% is moved.

About

Barry Barnitz, administrator of both the Bogleheads® wiki and of Financial Page, a Bogleheads® blog

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