Vanguard Cuts Fees On 11 ETFs By 3-20%

By
Olly Ludwig
December 24, 2012
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Vanguard, the at-cost fund sponsor founded by John Bogle, cut expense ratios on 11 ETFs—four equity funds and seven fixed-income funds—effective Friday, Dec. 21, a function no doubt of improved economies of scale that allowed it to pass on the savings to its fund holders.

The expense ratio cuts ranged from 3 percent on the Vanguard Russell 2000 Value ETF (NYSEArca: VTWV) to 20 percent on the Vanguard Mortgage-Backed Securities ETF (NYSEArca: VMBS), according to paperwork Vanguard filed with regulators last week.

Vanguard has a unique profile in the world of fund sponsors in that it is owned by its fund holders, and the prices of its portfolios reflect the actual costs of running the funds. While that puts the Valley Forge, Pa.-based firm at the center of a so-called fee war in the world of ETFs, the firm is loath to describe its price cutting as part of any concerted effort to undercut competitors.

That’s different from the way Charles Schwab described its fee cuts in September that gave its 15 ETFs the lowest expense ratios in their respective classes, and stands apart from how BlackRock’s iShares presented the rollout of its “Core” lineup of 10 ultra-cheap pure-beta funds in October.

But it doesn’t really matter that Vanguard refuses to call its declining fund costs as part of a fee war in the industry, because the end result in the fund industry is clear downward pressure on costs that is without question a positive for investors everywhere.

The fee cuts on the equities ETFs and each fund’s assets under management are as follows:

  • Vanguard Russell 1000 Value ETF (NYSEArca: VONV), a fund with $57 million that now costs 0.15 percent a year—or $15 for every $10,000 invested—from 0.16 percent previously
  • Vanguard Russell 2000 ETF (NYSEArca: VTWO), a fund with $169 million that now costs to 0.21 percent a year—or $21 for every $10,000 invested—from 0.22 percent previously
  • Vanguard Russell 2000 Value ETF (NYSEArca: VTWV),  a fund with about $20 million that now costs to 0.32 percent a year—or $32 for every $10,000 invested—from 0.33 percent previously
  • Vanguard Russell 3000 ETF (NYSEArca: VTHR), a fund with about $39 million that now costs to 0.15 percent a year—or $15 for every $10,000 invested—from 0.16 percent previously

 

With the exception of one of the fixed-income funds, the fee cuts on the bond ETFs amounted to 14.3 percent. Specifically, the funds now cost 0.12 percent a year—or $12 for each $10,000 invested—from 0.14 percent previously. Those funds, their assets under management and the fee cuts are as follows:

  • Vanguard Short-Term Government Bond ETF (NYSEArca: VGSH), a $246 million fund, now costs 0.12 percent instead of 0.14 percent
  • Vanguard Intermediate-Term Government Bond ETF (NYSEArca: VGIT), a $125 million fund, now costs 0.12 percent instead of 0.14 percent
  • Vanguard Long-Term Government Bond ETF (NYSEArca: VGLT), a $83 million fund, now costs 0.12 percent instead of 0.14 percent
  • Vanguard Short-Term Corporate Bond ETF (NYSEArca: VCSH), a $4.75 billion fund, now costs 0.12 percent instead of 0.14 percent
  • Vanguard Intermediate-Term Corporate Bond ETF (NYSEArca: VCIT), a $3.36 billion fund, now costs 0.12 percent instead of 0.14 percent
  • Vanguard Long-Term Corporate Bond ETF (NYSEArca: VCLT), a $1.16 billion fund, now costs 0.12 percent instead of 0.14 percent

 

The 30 percent fee cut was, as noted, on the Vanguard Mortgage-Backed Securities ETF (NYSEArca: VMBS), a $290 million fund that now costs 0.12 percent instead of 0.15 percent previously.

The fee cuts, again, were effective Friday, Dec. 21.

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