Vanguard’s plan to split operations into two distinct units may raise questions about the fund giant’s ability to hold down costs and maintain its world-class performance, but is no reason for clients to panic or jump ship, according to Independent Vanguard Adviser editor Jeff DeMaso.
“This isn’t just regulatory housekeeping. The real test is whether Vanguard can successfully run two best-in-class stock indexing operations without losing its edge — or letting costs rise. That’s where the rubber meets the road for investors like us,” DeMaso said in his newsletter Monday.
Vanguard recently announced it will establish two wholly owned U.S. investment advisors, Vanguard Capital Management and Vanguard Portfolio Management, with distinct investment management and stewardship teams.
The firm provided a broad outline, saying expense ratios and fund performance shouldn’t be affected, and promised updates on the plans. Vanguard expects the changes to be complete in 2026.
DeMaso detailed what he’s learned about the plans, following up on his initial reaction. He noted investors have asked about the practical implications, including whether they’ll need separate accounts to own funds from each unit and start receiving two statements rather than one.
“Vanguard assured me that: There will be no impact on statements, and no impact on the ability to hold or trade funds within a single brokerage account. The transition will be completely seamless from that perspective,” he wrote.
“In short, from an investor’s perspective, this transition should be uniform. You shouldn’t notice any difference in how your funds are run or how you interact with your account and Vanguard,” DeMaso said.
The restructuring doesn’t affect Vanguard’s bond or actively managed stock and balanced funds, he said. “What’s new is the creation of two separate stock index teams within Vanguard. Each team will work independently, even operating out of different buildings.”
Vanguard Portfolio Management will oversee actively managed funds and niche stock index funds, while Vanguard Capital Management will run the bond, broad index and index-based balanced funds, DeMaso said.
Managers at the two groups will be competing, he said.
“VPM will manage LargeCap Index and Russell 3000 ETF, while VCM will handle 500 Index and Total Stock Market Index. These funds own many of the same stocks — yet now two separate trading desks could be on opposite sides of the same trade or racing to buy the same shares. What if one team becomes faster and better at trading than the other?” DeMaso asked.
It will take years to see if Vanguard can successfully make the split without a misstep and keep the teams operating at the highest levels while maintaining low costs, he said. “For shareholders, the impact would show up in higher expense ratios or index funds that don’t track their benchmarks as tightly as they should — small cracks that can widen over time.”
“The good news? No one has more experience managing stock index teams and funds than Vanguard. And the firm has said this reorganization won’t push expenses higher,” DeMaso said.
The split also is an attempt “to address the long-running debate over how Vanguard exercises its voting power. Each advisory unit will have independent stewardship teams, each casting proxy votes separately. And yes, the units could cast conflicting votes on the same issue,” he said.
DeMaso had suggested initially that regulatory risk from Vanguard’s large stock positions was the primary driver behind the split but said Monday he had placed too much importance on that idea. Splitting into two units doesn’t allow Vanguard to sidestep ownership limits, he said.
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