Monday, April 25, 2005

Vanguard Large Cap Index Fund

The Vanguard 500 Index Fund (Symbol: VFINX) and the Vanguard Total Stock Market Index Fund (Symbol: VTSMX) are most widely held index funds with $103 Billion and $56.6 Billion in assets respectively. The 500 Index Fund tries to replicate the S&P 500 Index and Total Stock Market Index Fund uses MSCI US Broad Market Index. The Total Stock Market Index used to replicate the Dow Jones Wilshire 5000 Composite Index until recently, but Vanguard chose to switch the fund to follow MSCI index; which is in their words a better index because, the new index takes into consideration the “float” of a stock before assigning the weight in the index. In Vanguard’s view, “a weighing based on the amount of total shares outstanding, all of which may not be available in the market, does not necessarily provide a true representation of the publicly available US market”.

Another Vanguard offering in the index arena has gone relatively unnoticed by many. I hardly hear anything mentioned in the financial news media about this new index fund. The Vanguard Large-Cap Index Fund (Symbol: VLACX) is the new index fund in town. It does not hold 500 stocks like the 500 fund or more than 3500 stocks like Total Stock Market fund. It holds “a broadly diversified index of stocks of predominantly large US companies” in MSCI US Prime Market 750 Index (Bloomberg Ticker: MZUSP). Even though this fund is more than 1 year old, the assets under management were only $188 Million as of 3/31/2005.

It is just about time this stock fund takes off and competes with the other two Vanguard offerings in the Large Cap Blend arena for incoming assets. As usual, Vanguard requires $3,000 minimum for the regular accounts and $1,000 for IRAs. The expense ratio was 0.20% as of 12/31/2004.

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