Managers & Models

Vanguard CRSP ETF Models

Vanguard is one of the world's most respected investment management companies, offering a broad selection of investments, advice, retirement services, and insights. The Vanguard CRSP models aim to provide investors with long-term financial growth through cost-efficient and broadly diversified portfolios. These models leverage the power of indexing, offering a range of diversified portfolios designed to meet various risk appetites and investment goals.

Investment Philosophy

The goal of this model series is to provide broad asset-class exposure to U.S. and international equities, as well as U.S. investment-grade taxable bonds, using exchange-traded index funds (ETFs) in an asset allocation framework. Vanguard believes low-cost index ETFs have a greater probability of outperforming higher-cost actively managed solutions. Indexing helps reduce the variability of returns, decrease volatility, lower investment costs, and offer potential tax efficiency. Vanguard's approach is focused on long-term investments without reliance on short-term market forecasts.

What is CRSP?

The Center for Research in Security Prices (CRSP) is a premier provider of historical stock market data. CRSP indices serve as benchmarks to track the performance of U.S. equities across different market segments. These indices are known for their comprehensive coverage and robustness, making them an ideal foundation for Vanguard's ETF offerings. By utilizing CRSP indices, Vanguard ensures that their ETFs accurately represent market performance, providing reliable exposure to various segments of the U.S. stock market.

Investment Decision-Making Process

Vanguard's ETF models span the risk-reward spectrum from 100% fixed income to 100% equity. These models feature static asset allocations delivered in 10% increments of equity and fixed income, offering eleven distinct asset allocations.

Portfolio Construction

Within the broad asset classes (U.S. and international equities; U.S. and international investment-grade bonds), the models are market-cap weighted, reflecting exposure to the size/style as determined by the benchmark. The models adhere to a fixed 60/40 ratio of U.S. to international stocks and a 70/30 ratio of U.S. to international bonds, embodying a conscious "home bias" relative to global market-cap weighted benchmarks.

U.S. Equity Allocations

The U.S. equity allocation within the Vanguard CRSP model series is weighted according to prevailing market capitalization. This ensures exposure to all segments of the broad U.S. stock market (large-, mid-, and small-cap; growth and value) in the same proportion they are represented in the market.

International Equity Allocations

The Vanguard CRSP model series diversifies a U.S. stock portfolio with international stocks currently equal to 40% of the total equity allocation. This represents a conscious "home bias" relative to the global market-cap weighted benchmark. Non-U.S. stocks are represented by market-cap-weighted ETFs tracking benchmark indices of stocks in developed and emerging markets, excluding the United States.

U.S. Fixed Income Allocations

Vanguard follows a market-proportional approach within the U.S. investment-grade bond market, focusing on investment-grade bonds to provide diversification against equity exposure risks. The bond allocation includes high-quality bonds, primarily AAA-rated, which helps counterbalance stock market drawdowns but also introduces sensitivity to interest rate changes.

Hedged International Fixed Income Allocation

The Vanguard CRSP model series includes investment-grade international bonds, hedged to the U.S. dollar to mitigate currency fluctuation volatility. This asset class represents 30% of Vanguard's fixed income exposure, providing long-term diversification benefits.

Summary

The Vanguard CRSP model series provides a straightforward yet effective approach to investing. With a few broadly diversified ETFs and clear-cut allocation rules, the Vanguard models deliver globally diversified portfolios of stocks and bonds. The 0.05% weighted average ETF expense ratio in the CRSP model series is among the lowest available, supported by Vanguard's well-resourced equity and bond indexing divisions. The series favors high-quality bonds and avoids credit risk, aligning with Vanguard's conservative investment philosophy.

By choosing the Vanguard CRSP model series, investors can benefit from a disciplined, low-cost approach to achieve broad market exposure and long-term financial goals.