Vanguard US large cap index fund tracking error

Tracking error is the ultimate measure of judging an index fund manager’s performance.

Since an index manager does not engage in security selection with an index fund, it is the manager’s transactional skill which distinguishes performance. How well the manager uses index futures, cross trading, block trading and manages trading around index reconstitution determines how close the manager can track the index benchmark. Vanguard, in its attempt to closely track index returns, states that it utilizes the following trading policies:

  1. Rebalance each portfolio every business day to eliminate or reduce risk factor differences between funds and indexes.
  2. Strive to be 100% invested at all times, using futures and ETFs to equitize cash for full investment, with no cash drag and no leverage.
  3. Trade carefully, matching execution prices to fund share valuation.
  4. Leverage cross-trading opportunities with Vanguard’s many other investment funds, reducing or eliminating commissions and transaction charges.
  5. Maintain tight controls over commissions, bid-ask spreads, and market impact. For example, proprietary portfolio systems establish minimum trade sizes to control transaction costs.

Total Stock Market

Historical annual tracking error for investor and admiral shares.

Index changes:

  •  The fund made a change of benchmark on 06/03/2013 moving from the MSCI U.S. Broad Market Index to the CRSP US Total Market Index.
  •  The fund made a change of benchmark on 04/22/2005, moving from the Dow Jones Wilshire 5000 Index to the MSCI U.S. Broad Market Index.

500 Index

Historical annual tracking error for investor and admiral shares.

Large Cap

Historical annual tracking error for investor and admiral shares.

Index changes:

  • The fund changed benchmarks from the MSCI US Prime 750 Index to the CRSP US Large Cap Index on 01/31/2013.

Growth

Historical annual tracking error for investor and admiral shares.

Index changes:

  • The fund made a change in benchmarks from the MSCI US Prime Market Growth Index to the CRSP US Large Growth Index on 04/16/2013.
  • The fund made a change of benchmark on 05/16/2003, moving from the S&P 500/Barra Growth Index to the MSCI US Prime Market Growth Index.

Value

Historical annual tracking error for investor and admiral shares.

Index changes:

  • The fund made a change in benchmarks from the MSCI US Prime Market Value Index to the CRSP US Large Value Index on 04/16/2013.
  • The fund made a change of benchmark on 05/16/2003, moving from the S&P 500/Barra Value Index to the MSCI US Prime Market Value Index.
About

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

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Posted in Market statistics, Vanguard
March 2017
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