Vanguard ETF/fund ratios

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Vanguard began offering exchange traded funds in 2001. Vanguard ETFs are structured as separate share classes of mutual fund portfolios. Thus each of these portfolios will have an ETF/fund ratio.


Asset growth

Since inception, Vanguard has experienced steady growth of ETF assets. The firm is now the third largest U.S. ETF provider (behind Blackrock/iShares and State Street Global Advisors). The following table shows Vanguard ETF asset levels over the 2008 to 2012 period.

Table 1. Vanguard ETF Assets [1]
Year Net Assets (millions)
2013 $338,777
2012 $244,431
2011 $170,017
2010 $147,925
2009 $91,561
2008 $45,204

Dual fund structure

The dual structure of Vanguard ETFs provides the investment manager with multiple techniques for handling tax-management issues and helps reduce fund transaction costs. According to Vanguard:

Because Vanguard ETFs are shares of conventional Vanguard index funds, they can take full advantage of tax-management strategies available to conventional funds and to ETFs. Conventional index funds can manage tax liabilities by selling high-cost securities to realize losses to offset realized gains. They can also limit a fund's potential capital gains exposure by using in-kind redemptions to eliminate stocks with high built-in capital gains from the portfolio. This advantage gives our Vanguard ETFs management team more flexibility in implementing tax-management strategies. (from Learn More About Vanguard ETFs}

Shareholder transactions (purchases and redemptions) in mutual fund shares impose transaction costs on fund shareholders as the fund manager buys or sells securities with these fund flows. In the case of selling, the fund realizes a taxable gain or loss depending on the cost basis of the shares sold.

Individual shareholder transactions (purchases and sales) in ETF shares are made on brokerages; no transaction costs are incurred by the fund portfolio. Direct purchases and redemptions in the fund portfolio are made by institutional investors during the creation/redemption process. These are in-kind security transfers. Once again, the fund pays little or no transaction costs for in-kind exchanges (the transaction costs are borne by the institutional investor.) In-kind redemption gains are not taxable. By selecting the lowest basis shares for such transfers, the fund manager can transfer the embedded capital appreciation tax liability from the portfolio.


Fig.1. Showing the creation process for an ETF. Redemptions operate in reverse, with authorized participants presenting etf shares to the fund or trust in exchange for a basket of securities.

Fund to ETF ratio

The following table records the percentage of ETF shares to the total shares of Vanguard equity index funds offering ETF shares.[footnotes 1] For long term data on Vanguard fund tax efficiency and shareholder turnover, please refer to the pages included in the Vanguard fund distributions navigational box included below.

Table 2. ETF/Fund ratios [footnotes 2]
Fund 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004
Total Market 12.71% 11.55% 11.66% 11.90% 11.17% 10.55% 9.64% 8.06% 8.58% 7.17%
Mega Cap 68.24% 64.51% 65.74% 69.36% 64.58% 58.22% 69.79% - - -
Mega Growth 92.31% 99.97% 81.52% 77.44% 81.19% 72.94% 100.00% - - -
Mega Value 78.20% 79.53% 76.64% 75.74% 71.10% 68.05% 100.00% - - -
500 Index 9.39% 5.59% 2.36% 0.25% - - - - - -
Large Cap 57.32% 57.37% 58.82% 64.44% 65.79% 66.67% 62.12% 56.39% 41.78% 40.34%
Large Growth 35.47% 31.30% 28.71% 26.56% 24.84% 23.42% 18.94% 10.54% 3.05% 1.02%
Large Value 43.71% 38.14% 33.56% 30.28% 26.72% 25.88% 18.28% 15.18% 8.47% 6.90%
Dividend Appreciation 83.69% 81.48% 81.82% 77.97% 76.00% 62.73% 45.83% - - -
High Dividend Yield 69.52% 71.21% 72.73% 71.43% 74.28% 67.60% 63.19% - - -
Extended Market 8.47% 6.29% 6.15% 6.32% 6.25% 5.15% 4.03% 3.21% 3.49% 2.51%
Mid Cap 14.35% 12.27% 12.31% 13.03% 11.28% 7.40% 5.24% 8.81% 7.91% 0.68%
Mid Growth 46.34% 46.15% 52.38% 50.00% 53.80% 59.83% 49.23% 47.83% - -
Mid Value 50.00% 48.73% 52.31% 53.26% 52.90% 62.14% 52.42% 41.44% - -
Small Cap 18.55% 17.38% 16.16% 20.00% 20.23% 11.34% 7.54% 4.58% 2.49% 1.95%
Small Growth 23.68% 22.86% 24.05% 23.68% 23.53% 22.25% 19.57% 17.36% 10.27% 5.88%
Small Value 31.45% 30.23% 28.13% 27.14% 25.49% 24.37% 16.64% 9.93% 4.84% 1.49%
International
Europe 69.90% 57.01% 36.07% 37.84% 21.01% 10.14% 8.27% 5.16% 1.26% -
Pacific 48.15% 41.86% 37.84% 34.88% 22.03% 13.56% 8.82% 6.07% 2.23% -
Emerging Markets 74.68% 79.02% 78.27% 74.75% 59.33% 35.98% 24.33% 14.60% 6.48% -
FTSE All ex-US 55.56% 54.49% 50.86% 52.34% 63.16% 69.57% 74.26% - - -
Total International 2.03% 1.51% 0.82% - - - - - - -
FTSE Developed 87.96% 86.13% 80.00% 76.06% 73.33% 62.16% 20.83% - - -
FTSE All ex-US Small 80.95% 86.67% 81.44% 76.33% 78.30% - - - - -
Total World 65.96% 71.43% 73.33% 69.23% 77.19% 70.30% - - - -
Global ex-US RE 81.25% 68.45% 62.98% - - - - - - -
(view Google Spreadsheet in browser or download as xls, ods, or pdf)


See also

Exchange-traded funds

Notes

  1. The FTSE Developed Market ETF, formerly called the MSCI EAFE ETF, is a share class of the Vanguard Developed Market Index Fund, formerly the Vanguard Tax-Managed International Fund. In 2014 the Vanguard Developed Market Index Fund was merged into the Vanguard Tax-Managed International Fund, and ceased to exist. The new merged fund is now called the Vanguard Developed Market Index Fund.
  2. Ratios are determined at the close of the calendar years (12/31). For international index funds (except for the FTSE Developed Market ETF), the calculations prior to 2009 are made at the close of the fiscal year (10/31).

References

  1. Data source:ETF Industry Association

External links