Vanguard has swapped benchmark providers on two index funds with combined assets of $75bn, dropping Nasdaq in favor of S&P Dow Jones Indices.
The Valley Forge, Pa.-based asset manager announced Tuesday that the Vanguard Dividend Appreciation Index fund (VDADX), which has $70.7bn under management including ETF assets, will stop tracking the Nasdaq US Dividend Achievers Select index and switch to the newly launched S&P U.S. Dividend Growers index.
The Vanguard International Dividend Appreciation Index fund (VIAXX), which has $3.8bn under management including ETF assets, will change its benchmark to the S&P Global Ex-U.S. Dividend Growers index from the Nasdaq International Dividend Achievers Select index.
The funds had tracked those benchmarks since their inceptions in 2006 and 2016, respectively.
The index switches will occur in the third quarter of the year, and in both cases, the ETF versions of the funds - VIG and VIGI, respectively - will make the same changes.
The S&P benchmarks are part of a new series from the index provider, which was unveiled by the company to coincide with Vanguard’s announcement.
‘We’re very pleased that Vanguard has selected our indices to serve as target benchmarks for two of their popular dividend-themed index funds and the performance benchmark for an actively managed mutual fund,’ said Dan Draper, the CEO of S&P DJI, in a statement. ‘S&P DJI is pleased to license our indices to clients such as Vanguard so that they in turn can offer accessible and cost-efficient products to help end investors save for retirement and meet their investment goals.’
The $50.5bn Vanguard Dividend Growth fund (VDIGX), an actively managed strategy, subadvised by Wellington Management, will also switch its benchmark to the S&P US Dividend Growers index, having previously been measured against the Nasdaq US Dividend Achievers Select index since 2010.
The move means that Nasdaq no longer licenses any indices to Vanguard funds.
‘As part of our ongoing due diligence process, Vanguard determined that new benchmarks would best enable our Dividend Appreciation funds to perform in line with their investment objectives,’ said Kaitlyn Caughlin, head of Vanguard’s portfolio review department, in a statement. ‘We believe S&P Dow Jones Indices’ approach to dividend indexing closely aligns with Vanguard’s views, and we are confident that S&P DJI is well-positioned to administer the indexes moving forward.’
Nasdaq declined to comment about the shift.
None of the funds’ portfolio managers are being changed. VDADX has been managed since 2016 by Gerard C. O’Reilly and Walter Nejman, both of Vanguard Equity Index Group. VIAXX has been managed since 2016 by Justin E. Hales and Michael Perre. VDIGX will continue to be managed by a subadvisor Wellington Management, according to Vanguard. Donald J. Kilbride is the named PM on that fund and has run it since 2006.
The investment strategies of the funds are not set to change either, according to a Vanguard filing with the Securities and Exchange Commission (SEC). While the index switches may result in taxable gains, the changes are not expected to increase expense ratios, Vanguard said in the filing.
An S&P DJI spokesperson declined to comment on the licensing fee it would receive from Vanguard for the indices.
A Vanguard spokesperson would also not disclose the fees, but said the firm ‘always seeks to negotiate licensing agreements for benchmarks that are favorable to our fund shareholders from a cost perspective and afford the potential to pass along significant savings over time in the form of lower expense ratios.’
Vanguard has scheduled the transition for some time in the third quarter of 2021 but declined to say exactly when. In the SEC filing, the firm noted some secrecy on timing would be necessary to protect the funds from front-running.
Vanguard managed about $7.8tn in assets, including about $6.1tn in index assets, as of April 30.
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