Vanguard large cap index fund tracking error
Vanguard large cap index fund tracking error measures Vanguard's indexing performance. 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, utilizes the following trading policies:
- Rebalance each portfolio every business day to eliminate or reduce risk factor differences between funds and indexes.
- 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.
- Trade carefully, matching execution prices to fund share valuation.
- Leverage cross-trading opportunities with Vanguard's many other investment funds, reducing or eliminating commissions and transaction charges.
- Maintain tight controls over commissions, bid-ask spreads, and market impact. For example, our proprietary portfolio systems establish minimum trade sizes to control transaction costs. 
Table 1. provides the long term average tracking errors for Vanguard's large cap index funds. (Please note we have data going back to 1993 for the 500 Index fund; the fund began operations in 1976.) With the increased availability of admiral share classes (reduced minimum investment $10,000) we provide tracking error data for both investor and admiral shares. The lower expense admiral shares produce tighter tracking of benchmark returns.
We should note that the historical tracking errors are less than the expense ratios for the funds, meaning that the index manager has provided added returns to fund investors through transactional efficiency. Detailed annual tracking error data (along with additional statistical measurement of fund returns) are provided in the footnote tables.
|Fund||Investor shares||Admiral shares|
|Year||Tracking Error||Year||Tracking Error|
|Vanguard Total Stock Market Index [note 1]
|Vanguard 500 Index[note 2]
|Vanguard Large Cap Index [note 3]
|Vanguard Growth [note 4]
|Vanguard Value [note 5]
Benchmark index changes
The Vanguard Total Market, Growth, and Value index funds have changed benchmark tracking indices over their history. The Total Market fund changed from Wilshire to MSCI indices; the two style index funds shifted from S&P indices to MSCI indices. Table 2 provides a breakdown of tracking error to each benchmark index. The table also provides the tracking errors since the inception of admiral shares in each fund.
|Index||Tracking Error||Index||Tracking Error||Index||Tracking Error|
|Vanguard Total Stock Market Index||Dow Jones Wilshire 5000
through April 22, 2005
|-0.17%||MSCI US Broad
Market through 2013
|-0.02%||CRSP Total Market||-0.15%||-0.13%||-0.02%|
|Vanguard Large Cap Index||n/a||n/a||MSCI US Prime
Market through 2013
|-0.20%||CRSP Large Cap||-0.23%||-0.18%||-0.05%|
|Vanguard Growth Index||S&P 500/Barra Growth
through May 16, 2003
|-0.07%||MSCI US Prime
Market Growth through 2013
|-0.20%||CRSP Large Cap Growth||-0.22%||-0.20%||-0.07%|
|Vanguard Value Index||S&P 500/Barra Value
through May 16, 2003
|-0.12%||MSCI US Prime
Market Value through 2013
|-0.15%||CRSP Large Cap Value||-0.24%||-0.15%||-0.03%|
Vanguard Total Stock Market Index Fund (View Google Spreadsheet in browser, then File --> Download as to download the file.)
Vanguard 500 Index Fund (View Google Spreadsheet in browser, then File --> Download as to download the file.)
Vanguard Large Cap Index Fund (View Google Spreadsheet in browser, then File --> Download as to download the file.)
Vanguard Growth Index Fund (View Google Spreadsheet in browser, then File --> Download as to download the file.)
Vanguard Value Index Fund (View Google Spreadsheet in browser, then File --> Download as to download the file.)
- William Bernstein, Selection Skill, Transaction Skill, Efficient Frontier, Fall, 2000
- Vanguard:Passive Equity Portfolios
- All return data for this and all other tables is derived from the SEC Complete filings: N-CSR reports back to 2003; N-30D reports back to 1994