Talk:Vanguard large cap index fund tracking error


 * Terminology: I assume splice means that the appropriate index is applied for each year.
 * Yes, this is how Vanguard describes benchmark history when the tracking index has been changed.  --Blbarnitz 00:32, 15 March 2011 (EDT) Additional note: I have separated the table "notes" section to place the index change history with table one. --Blbarnitz 10:51, 15 March 2011 (EDT)


 * In Tables 3 and 4, what is the difference between "Composite Return" and "Spliced Total Stock Market Index Return"?
 * In general I do not trust spreadsheet blackbox computations. In order to come up with a compound rate of return I use the compound return formula. This necessitates the computation of the composite cumulative return for a period (the formula raises the composite cumulative return by 1/n with n being the number of years. Actual spreadsheet formula for 2010 cell:((1+F2)^(1/18)-1). The two composite cumulative return columns allow for the compound return (CAGR) computation in the summary box.--Blbarnitz 00:32, 15 March 2011 (EDT) Additional note: I have changed the headings to "cumulative returns", which I hope clarifies the columns. --Blbarnitz 10:51, 15 March 2011 (EDT)

Below is from the Vanguard Index Fund (SEC) filing, Total Returns, Fiscal Year Ended December 31, 2010

Table 3 Vanguard Total Stock Market Index Fund (Matches Table 3, a check that I have the right data for the following question) Investor Shares 	17.09% Admiral™ Shares 	17.26


 * How is the Composite return at 313.20%, Spliced Total Stock Market Index Return at 322.47% calculated for Investor shares (top row)? I'm comparing to the Admiral shares which show 14.92%, 14.71% respectively. I would not expect to see significant differences. Table 4 has similar results.
 * The two share classes do not have the same time frames. Investor shares begin in 1992 and have a full year returns history of 18 years. Admiral shares were created later and have a shorter history. Thus the life of fund composite cumulative returns will not be the same. I provide contemporaneous tracking error data for the two share classes in table 2. Computation of composite  cumulative returns multiplies prior year return by current return using spreadsheet formula: =(1+F3)*(1+B2)-1.--Blbarnitz 00:32, 15 March 2011 (EDT)

Also in the N-CSR report: Ten Years Ended December 31, 2010, Average Annual Return Total Stock Market Index Fund Investor Shares, 2.45% Spliced Total Stock Market Index, 2.56

The report shows 2.45% average annual return over 10 years. An average of Table 3 "Return" from 2001 to 2010 results in 4.77%. --LadyGeek 17:47, 14 March 2011 (EDT)
 * The Vanguard average returns are average compound annual returns; the average (marked simple average) returns in the spreadsheet are arithmetic averages. (The CAGR [Compound Average Growth Rate]cells report both the life of fund and life of benchmark average compound return.) The simple average is necessary to compute the variance drain, which is the difference between average annual compound return and average annual arithmetic return.--Blbarnitz 00:32, 15 March 2011 (EDT)

I understand your tables now. Changing from composite to cumulative was significant. In engineering, a "composite" function implies multiple sources, which I could not find. "Cumulative" means summation, which is appropriate.

Adding the simple average row and highlighting in blue clarifies the table. It would help further if the reference (baseline) year was explicitly noted. For example, Table 3 "1993" could show "(Reference) 1993" or "(Baseline) 1993" to indicate that it's the starting point for your cumulative (compounding) calculations.

I would also modify the spreadsheet "addendum" tabs title to "Tracking Error", as I didn't understand the intent until I matched content with Table 2.

The index changes currently below Tables 1 and 2 can be embedded within the tables, which will make them easier to understand. (I can work on this.) I am not quite skilled enough with table creation to embed the "note"s-thanks for the help.--Blbarnitz 23:34, 15 March 2011 (EDT)

I may provide further explanations as you've pointed out above. We don't have the complexity requiring a separate page (like the Vanguard funds: distribution methodology).

--LadyGeek 22:35, 15 March 2011 (EDT)