Vanguard mid cap index fund tracking error

Posted on April 1, 2017 by Administrator

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:

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, proprietary portfolio systems establish minimum trade sizes to control transaction costs.

Extended market

Historical annual tracking error for investor and admiral shares.

Index change:

Fund changed tracking index from Wilshire Completion index to S&P Transitional Completion Index through September 16, 2005; S&P Completion Index thereafter.

Mid cap

Historical annual tracking error for investor and admiral shares.

Index changes:

The fund changed benchmarks from the MSCI 450 Mid Cap Index to the CRSP US Mid Cap Index on 01/31/2013.
The fund changed index benchmarks from the S&P 400 Index to the MSCI 450 Mid Cap Index on 5/16/2003.