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. We believe that selecting an appropriate benchmark is crucial to providing a best-in-class ETF.
Many index providers use benchmark construction best practices that Vanguard has promoted for years. We believe stock and bond benchmarks should:
Additionally, stock benchmarks should use multiple criteria to categorize growth versus value stocks and buffer zones so that market-capitalization divisions can overlap, with no hard cutoff points, to limit unnecessary turnover.
Using best practices to construct benchmarks can deliver benefits to investors, including: