ETF Does VAS participate in share buybacks?

What does VAS do in regards to buybacks?

 

VAS holds approx $800 million worth of BHP shares, and the buyback & special dividend is approx 1% the value of the entire ASX!

You're looking at VAS offloading around $60 million worth of shares (either through the buyback or by selling), and getting a special dividend in January of around the same $60 million again.

One way or another it will materially affect both the December and March quarter dividends.

 

Is that actually the situation with an off-market buyback? It requires, I understand, an active decision of the shareholder to sell into the buyback but that doesn't normally apply to passive ETF's to which an index approach applies. Happy to be corrected as I'm often wrong.

And I understand, again I'm likely to be wrong, where there is a Return of Capital by a company it reduces the cost base of the holding in the ETF. The unit holder doesn't get the benefit in a direct way.

 

Not sure about Vanguard but assuming the following is up to date SPDR ETFS (eg STW) don’t appear to participate in Buybacks because investors circumstances differ:

https://www.spdrs.com.au/education/files/Not All Dividend Distributions Are The Same 23122011.pdf

 

I rang Vanguard about buybacks. I was told that he didn’t think Vanguard did participate in buybacks but I wasn’t 100% confident with his answer. I’ve submitted an email request for a definitive answer on this and will report back here with answer if / when provided.

This document from Vanguard is a bit confusing as to how Vanguard handle actions like Buybacks:

Why indexing is anything but passive

 

Thanks for the investigations and calls to State Street and Vanguard guys!

I'm not so sure how they do it myself, but assuming the index weight of say BHP falls after a buyback, the index funds have to rebalance themselves accordingly.

The thinking behind index funds not wanting to "drive price discovery" in the act of rebalancing is also an interesting topic. Especially as index funds continue to grow in size.

 

Would it make sense that the big index funds don't vote, leaving decision making to the individual holders? This then would be the advantage of having direct holdings.

In principal the index funds don't want to influence the companies they buy, they just want to ride their shirt tails.

 

I don't think the index funds need to rebalance because if the index weight of something changes then it should automatically be reflected in the index fund as the shares has dropped in value - they only buy and sell on inclusions or exclusions from the index.

 

Think I remember reading that Vanguard (maybe US) do talk to companies and try to support corporate decisions that are in the best interest of long term shareholders, which I assume would include voting (though can’t quite remember).

 

Received an email from Vanguard in relation to Buybacks:

So just like SPDR ETFs (eg STW) Vanguard ETFs (eg VAS) do not participate in any off-market share buyback programs.

 

Makes sense to me. Off market buy-back is "opt in", I wouldnt expect them to elect to sell stock when their remit is to be the index.

 

Yep, was always what I understood to be the case. But someone asks the question / makes an assumption that seems unlikely to me so personal investigation uncovers ambiguity and me being me I have to seek out answers. And to be honest it really wasn’t of interest to me personally but if it puts someone else’s mind at rest or clarifies the issue then I’m happy. Besides us oldies need to keep our grey cells active to slow down the progression of senility.