This year, Vanguard announced its “Intent to Revert Diversification Status for Two Funds ” and created a “proposal to change the status of Vanguard Financials and Health Care Index Funds ” with a vote scheduled for November 4, 2025.
While there does not appear to be news published on the topic, as we write this the vote has been extended and the special meeting rescheduled for Tuesday, January 6, 2026. We assume this means Vanguard did not get sufficient votes for a quorum. The inability of a fund to get a quorum is one reason why not voting is the best way to vote no.
By default, we recommend that shareholders skip voting in this election. For the curious, here are the details:
What is happening?
Shareholders of Vanguard Health Care Index Fund, including Vanguard Health Care ETF (VHT), are being asked whether to change the fund’s classification under the Investment Company Act of 1940 from diversified to non-diversified.
A diversified fund must satisfy the “75-5-10” test . This means that within 75% of assets, no more than 5% is permitted in any one issuer and the fund cannot own more than 10% of an issuer’s voting securities. A non-diversified fund does not have these requirements and so can hold a larger percentage in a single company.
Why did Vanguard propose a change?
Vanguard’s benchmark, US IMI Health Care 25/50 , has become top-heavy with four companies having more than a 5% allocation and representing 29.88% of the index. This 29.88% is greater than the 25% where they are permitted concentration under the diversification classification. This means that to meet the diversification rules, Vanguard must reduce their allocations to some of these four companies compared to the benchmark.
| Company | Allocation in MSCI US IMI Health Care 25/50 Index as of Oct. 31, 2025 | Allocation in Vanguard Health Care ETF as of 10/31/2025 |
|---|---|---|
| LILLY (ELI) & COMPANY Eli Lilly & Co. | 11.26% | 11.25% |
| JOHNSON & JOHNSON Johnson & Johnson | 7.36% | 4.54% |
| ABBVIE AbbVie Inc. | 6.24% | 5.24% |
| UNITEDHEALTH GROUP UnitedHealth Group Inc. | 5.02% | 4.71% |
Vanguard is asking for non-diversified status so the portfolio can mirror the benchmark’s weights more precisely, potentially reducing the fund’s tracking error.
What would change if this motion passes or doesn’t pass?
If approved, the fund would have the legal flexibility to concentrate more in fewer issuers.
A “yes” vote removes diversification limitations and may improve index tracking during this season of high index concentration but would open the fund to concentrating its allocations during any season.
A “no” vote keeps the 75-5-10 limitations and would force Vanguard to remain diversified even as the benchmark becomes more concentrated.
We aren’t worried either way. Although by default, we would vote for a diversified index because that is Vanguard’s job as a manager — to create a diversified health care ETF — and we see no reason to relieve them of that duty.
Photo of a hospital by Acton Crawford on Unsplash. Image has been cropped.
