If you are somewhat familiar with personal investing, chances are, you have heard of, or even know and invest with Vanguard. However, in case you are not sure what Vanguard exactly is, let us begin there. So, what is Vanguard?
Vanguard funds split once in 2008 and again in 2013. The funds that split were VTI, VWO, VXF, and VOO. Vanguard mutual funds have never split. Vanguard splits their funds to lower the prices of their ETFs and appeal to more investors.
In this article, we’ll look at how Vanguard funds split and which funds have been affected thus far. We’ll also go over the reasons Vanguard may choose to split their funds and why mutual funds are unlikely to undergo such a split.
What happens when Vanguard funds split?
Stock splits are when companies (or funds) increase the number of shares shareholders have. This process does not affect the actual valuation of the company.
Let us consider a real example; On the 30th of July, 2020, Apple announced a 4:1 stock split to take effect on the 31st of August, 2020. This meant that for every single share any investor held before the 31st of August when trading began on that day, a single share would become four shares.
However, the price of a single share just before trading opened on the 31st would also be divided by four. Just before this stock split, Apple shares traded at $500, after the share split took effect, prices were down to $125.
How does a Vanguard fund split affect your portfolio?
If you had a single Apple share on the 30th of August worth $500, at the open of trading on the 31st, you would have had four Apple shares at $125 each, still amounting to your previous $500. So why do stocks split? Most of the time, to make it more attractive to retail investors.
Does Vanguard split funds?
Since Vanguard has both ETFs and mutual funds, these funds can be split. Vanguard has, in fact, split funds twice in the past. Once in 2008 and again in 2013.
Which Vanguard funds split?
In 2008, Vanguard split three ETFs at the same time:
- Vanguard Total Stock Market ETF (VTI)
- Vanguard Emerging Markets ETF (VWO)
- Vanguard Extended Market ETF (VXF)
A 2:1 split meant every recorded shareholder in all of those ETFs as of the 13th of June 2008, received an extra share for every existing share they had. However, share prices had been divided by two. The shares began trading at the adjusted prices on the 18th of June.
In 2013, the process was a little different. This time, Vanguard carried out a reverse stock split. A reverse stock split is the opposite of a regular stock split. This time, the affected fund was also an ETF:
- Vanguard 500 Index Fund ETF (VOO)
A 1:2 reverse stock split this time, the reverse split meant that the number of available shares would reduce by half, and the price of the shares would then double. The reverse stock split was announced on the 11th of September 2013 and took effect at the beginning of the trading day on October 24th, 2013.
So, if you had four shares of VOO before the split, after the split, you would have had two. Before the reverse split, VOO traded at $79.97 so four VOO shares would have cost $319.88. After the reverse split, shares began trading at $160.49 so, your two shares would still give the same value.
Why do Vanguard ETFs split?
Now, you would notice that Vanguard has only ever split ETFs and not mutual funds. There is a perfectly sensible explanation for this: Vanguard does not allow the purchase of fractional shares in their ETFs. Although some brokers will still let you buy fractional Vanguard ETF shares, it only makes sense for Vanguard to occasionally lower the prices of their ETFs to appeal to more investors.
You might now be wondering: If Vanguard is looking to attract more investors, why the reverse stock split in 2013 then? According to the company in 2013, increasing the price through the reverse split meant the cost to purchase shares (the spread) would be lower for investors. From all these, we can deduce that Vanguard’s primary concern is always to keep costs at a minimum for existing investors.
So, Yes. Vanguard does split funds. We could see an ETF split anytime, and although there is no reason to split a mutual fund, that could also happen.
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