Index ETFs

Since introducing the first index fund for individual investors in the United States in 1976, Vanguard has developed a reputation for tight index tracking, rigorous risk controls and low costs. Today, millions of investors around the world rely on us for our high-quality index investments.

Indexing at Vanguard

Our index ETFs are designed to work as part of a core indexing strategy that targets major asset classes.

In Vanguard, we offer a suite of market-capitalization-weighted index ETFs that cover U.S. and international equities and global investment-grade bonds. These ETFs benefit from the same management expertise and benchmark construction best practices that made us a global indexing leader.

Potential advantages of indexing

Low costs	Index investments don't require highly paid teams to analyze and select stocks. Instead, they hold securities until the index itself changes. As a result, they generally have low management and transaction costs. Research has shown lower-cost funds tend to outperform higher-cost funds over the long term.
Diversification	Index investments generally hold most or all of the securities in their target indexes, and some provide exposure to thousands of securities. Investing in many or all key market segments ensures some participation in stronger areas while also mitigating the impact of weaker areas.
Simplicity	Most index investments have a precise, easily understood objective: to track the performance of a specific index (before fees and expenses).
Tax efficiency	Index investments may provide a tax advantage relative to open-end, actively managed funds because their management tends to require less portfolio turnover. Lower turnover can minimize capital gains distributions, which can, in turn, improve long-term after-tax performance.
Competitive performance	Low-cost, well-managed index investments can be an effective way to achieve competitive returns over the long run.

Read about our benchmarks and their methodology.

Index products and the benchmarks they seek to track have proliferated. But index providers' methodologies vary, so two benchmarks tracking the same market segment may deliver very different results. Selecting an appropriate benchmark is crucial to providing a best-in-class index ETF.

Many index providers use benchmark construction best practices that Vanguard has promoted for years. We believe equity and fixed income benchmarks should:

• Be based on objective rules, not subjective judgment.
• Include only shares and bonds that are available on the open market.
• Reflect market size and style changes through orderly rebalancing.

Additionally, equity benchmarks should use multiple criteria to categorize growth versus value stocks and use buffer zones so that market-capitalization divisions can overlap, with no hard cut-off points, to limit unnecessary turnover.

Benefits of well-designed benchmarks

Using best practices to construct benchmarks can deliver benefits to investors, including:

• Low portfolio turnover, which leads to lower transaction costs and potentially greater tax-efficiency.
• Better reflection of targeted markets, which can make index ETFs efficient asset allocation tools.
• Ability to compare among index products, allowing investors to choose benchmarks based on preference, cost and accessibility.