Ten of Vanguard’s index funds and corresponding exchange-traded fund share classes are now linked to updated MSCI 25/50 sector indexes that have expanded their concentration of holdings to comply with IRS diversification rules.

Historically, the MSCI Consumer Staples Index, MSCI Energy Index and MSCI Telecommunications Services Index have concentrated in a few issuers. Thus, to ensure compliance with IRS diversification standards, the funds tracking these indexes have had to underweight large holdings and overweight small holdings, which has led to tracking errors and high index turnover.

The IRS code disallows more than 25% of a fund’s assets to be in a single issuer and no more than 50% of its assets in stocks that represent 5% or more of the fund’s total assets.

The funds affected include the Vanguard Consumer Staples Index Fund, Vanguard Energy Index Fund and the Vanguard Industrials Index Fund.

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