No. Previously, I already thought the fund carried those risks (perhaps my personal threshold for "non-diversified" was lower than that in the 1940 act). Listing those risks in the fund description just makes that risk more visible to more audiences, which is probably a good thing. I don't see it as a "problem" in any case. They're just making a statement of fact (that the fund may go outside the definition of diversified according to the 1940 act). Stating a fact isn't a problem.Do you feel differently about the proper role of broad US (S&P 500 or total market) asset classes in your portfolio given these apparent new risks - at least according to Vanguard?
I'm not seeing anything online that confirms your assertions. If you think Vanguard's wording was caused by some recent change on the part of the SEC or anyone else in the government, please cite the change and when it came into effect.The relevant law has not changed but how the SEC interrupts and enforces that law has for indexed funds. The Investment Company Act requires a fund declare whether it will operate as a diversified company or not in its registration statement. It also requires that once that fund is registered it can only change its classification from diversified to non-diversified unless authorized by a vote of a majority of its outstanding voting securities. Certain index funds that provided specified notices to their shareholders are now exempt from this requirement.In what alternate universe is the Investment Company Act of 1940 a new regulation?And just because they have now addressed non-diversification when required by a new regulation does not mean that Vanguard feels like they need to address this risk. All we can say for sure is that some government regulator feels like they need to address this risk.
Not really. Yours is the first indication that any fear is involved. Every fund has various risks which are listed in the fund prospectus (appropriately). I simply choose which risks I want or don't want. I don't fear them.I do not care one iota about my investments in Vanguard’s S and P 500 fund. This smacks of fear mongering.
I think the answer is that those who want to take the suggested actions will take them, and those who don't, won't. It doesn't say anything about what you should do. I'll just add that the merged company can be brought down by one corrupt C-suite, which would be less likely to happen to both of the two separate companies. I'm not saying this means you should take any particular action. You should do what you want. I hope that answers your question.If the parameter is "don't own an index fund if a single company comprises more than 5% of the total value," does one sell if two companies that each comprise 4% of the value merge? Is it okay to buy the fund again if the merged companies subsequently re-separate? Is an index that includes a megacap conglomerate not okay, but it becomes okay if the conglomerate breaks up into pieces that don't alter the composite value? Is there a better alternative to just owning the entire universe of stocks according to their current valuations?
There's nothing in the OP saying anything about active vs. indexed. Whether one should own active funds is a different topic (I own both active and indexed). If one is concerned about VOO having sector risk, they could also own other index funds (such as VTV and others mentioned upthread). Some people were already doing that before the aforementioned wording showed up. It's not a problem.Actively managed funds in aggregate also own their benchmark indices in exactly the same concentrations as index funds. One could seek out only those funds that skew towards lower valuation holdings, but active management of any sort has not been a winning strategy.
People invest in what they want. If different people want different things, it doesn't mean there's a problem.
This. There's no reason to change the regulatory definition, because it's not causing a problem.Or maybe people need to recognize that market cap weighting can at times result in nondiversification and the potential consequences of that (which apply to index funds just as they do to active funds), so they are not taken by surprise that such a thing could ever happen.Maybe regulatory definition of diversification needs changing to account for market weighting.
Statistics: Posted by HanSolo — Mon Jul 08, 2024 3:15 am — Replies 27 — Views 2801