Vanguard Switches Benchmarks on Seven Index Funds

Like all shrewd index fund investors, Vanguard is also looking for lower costs on its investments. Thinking it has found a better bargain -- and more precise benchmark indices -- the firm is shifting nearly $20 billion of its assets.

The mutual fund giant announced Thursday changes to the indices on which it bases seven domestic equity funds. Vanguard said its board has opted for benchmarks created by Morgan Stanley Capital International, dropping six Standard & Poor's indices and the Russell 2000 index. The (VFINX Quote)Vanguard 500, the largest stock mutual fund around with $65.7 billion in assets, will continue to use the S&P 500 as its benchmark, however.

The switch comes after Vanguard's yearlong search to find indices that used better methodologies for choosing stocks than S&P's.

"We were impressed that the new MSCI indexes satisfied most of the characteristics we were searching for in a benchmark," Vanguard Chief Investor Gus Sauter said in an interview. "We liked the style integrity of the MSCI index, as well as the lower turnover on an annualized basis." The lower turnover rates compared with current indices will result in modestly lower transaction costs, Vanguard said.

According to Vanguard's news release: The $3.3 billion-in-assets (VIMSX Quote)Vanguard Mid-Cap Index fund will replace the S&P 400 Mid-Cap index with the MSCI U.S. Mid-Cap 450 index.

The $3 billion (VIVAX Quote)Vanguard Value Index fund will replace the S&P 500/BARRA Value index with the MSCI U.S. Prime Market Value index.

The $7.4 billion (VIGRX Quote)Vanguard Growth Index fund will replace the S&P 500/BARRA Growth index with the MSCI U.S. Prime Market Growth Index.

The $4 billion (NAESX Quote)Vanguard Small-Cap Index fund will replace the Russell 2000 index with the MSCI U.S. Small-Cap 1750 index.

The $1.3 billion (VISVX Quote)Vanguard Small-Cap Value Index fund will replace the S&P Small-Cap 600/BARRA Value index with the MSCI U.S. Small-Cap Value index.

The $487 million (VISGX Quote)Vanguard Small-Cap Growth Index fund will replace the S&P 600/BARRA Growth index with the MSCI U.S. Small-Cap Growth index.

And the $253 million Vanguard Variable Insurance Fund Mid-Cap Index Portfolio will replace the S&P 400 Mid-Cap index with the MSCI U.S. Mid-Cap 450 index.

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