Vanguard Splitting Some ETF's; A Smart Move (VTI, VWO, VXF, MER)

There has been an interesting development in ETF Land, and it may actually help Joe Q. Public in its ability to own shares in each of these ETF’s.  Vanguard Group is going to split the shares on a 2 for 1 basis on three of its most popular exchange traded funds.

A 2 for 1 split will occur in the shares of the following ETF’s:

• The $10.8 billion sized Vanguard Total Stock Market ETF (AMEX: VTI) which closed at $141.25 and has an average daily volume of 530,000 shares;
• The $7.6 billion sized  Vanguard Emerging
• Markets ETF (AMEX: VWO) which closed at $102.96 and has an average daily trading volume of 934,000 shares;
• and the $13.3 billion sized Vanguard Extended Market ETF (AMEX: VXF) which closed at $107.25 which has an average daily trading volume of 113,000 shares.

The truth is that stock splits on the surface do not matter other than it being a mental game.  On an ETF it cannot create an artificial impact on the holdings as the underlying holdings cannot be affected by a move of this sort.  But what it can easily do is make it easier for retail investors to buy 100 shares of each, and that in turn may help increase the trading volume and liquidity of each ETF.

Normally we view stock splits with some caution, but this move actually makes sense.  This could actually portend a similar ETF share split out of several other ETF families whose ETF’s are less actively traded than many ETF’s and whose share prices are much higher.  Merrill Lynch (NYSE: MER) is a prime example of an ETF series parent who might want to watch this move closely.  Its HOLDRS ETF series can only be purchased in lots of 100 shares because of those old distribution rights that were in the ETF’s.

Now if Vanguard could just keep its founder John Bogle from publicly bashing ETF’s every time he makes television appearances…..

Jon C. Ogg
June 5, 2008