Vanguard said in a news release that the 14 VIPERs, which track various domestic benchmarks developed by Morgan Stanley Capital International, Inc. (MSCI), include (with expense ratios):
- Vanguard Large-Cap VIPERs – 0.12%
- Vanguard Value VIPERs – 0.15%
- Vanguard Growth VIPERs – 0.15%
- Vanguard Mid-Cap VIPERs – 0.18%
- Vanguard Small-Cap VIPERs – 0.18%
- Vanguard Small-Cap Value VIPERs – 0.22%
- Vanguard Small-Cap Growth VIPERs – 0.22%
- Vanguard Consumer Discretionary VIPERs – 0.28%
- Vanguard Consumer Staples VIPERs – 0.28%
- Vanguard Financials VIPERs – 0.28%
- Vanguard Health Care VIPERs – 0.28%
- Vanguard Information Technology VIPERs – 0.28%
- Vanguard Materials VIPERs – 0.28%
- Vanguard Utilities VIPERs – 0.28%.
While Vanguard has offered actively managed sector funds since 1984, including the $20-billion Vanguard Health Care Fund and the $2.5-billion Vanguard Energy Fund, the sector VIPERs represent the first series of conventional index funds based on discrete market segments, the suburban-Philadelphia mutual fund company said. The sector VIPERs may help certain institutional and intermediary investors “manage complex investment hurdles, like the need to increase exposure to a sector unrepresented in a portfolio, or to mitigate overall portfolio risk,” the company said.
“Our long-standing philosophy is that the majority of investors should use broadly diversified index funds as the core of their portfolio, and sector funds should represent only a small portion, if any, of a long-term, balanced investment program,” said Gus Sauter, Vanguard’s chief investment officer.
The company said that Vanguard expects to launch six additional VIPERs – three additional sector VIPERs and VIPER Shares of the European, Pacific, and Emerging Markets Stock Index funds – later this year.
According to the Vanguard announcement, VIPERS offer several advantages including:
- Greater Tax Efficiency Opportunities. All index funds – conventional shares and exchange-traded shares – are already highly tax-efficient due to indexing’s buy-and-hold, low-turnover approach. Conventional index funds and ETFs may also employ an in-kind redemption process, in which redemptions are paid in shares of the fund’s underlying stocks. In-kind redemptions do not trigger a capital gain or loss, unlike cash redemptions.
- Tracking Precision. Cash flows in the conventional share class of a fund also benefit the VIPER Shares when a stock is added to or deleted from the underlying benchmark. Stand-alone ETFs must completely rebalance their portfolios to adjust to this benchmark change. VIPERs, on the other hand, can frequently use cash flows from the conventional share classes to realign the fund, thereby incurring fewer transaction costs. Thus, the VIPER structure creates the potential for greater cost efficiency and greater tracking efficiency.