The annual expense ratio on the Vanguard FTSE Emerging Markets Index ETF (NYSEArca: VWO) and on seven other Vanguard ETFs dropped today, a function of asset growth in the past year that improved economies of scale and triggered the decline for Vanguard, a mutually owned fund company that runs all its funds at cost.
VWO, which is in the midst of changing its holdings to an index designed by FTSE, now has an expense ratio of 0.18 percent, or $18 for each $10,000 invested, a 10 percent drop from 0.20 percent previously, according to a mandatory regulatory filing that must be submitted to the SEC no more than 120 days after the Oct. 31, 2012 fiscal year-end for the funds in question.
“VWO’s expense reduction represents another example of Vanguard sharing economies of scale savings directly with the clients that help generate them,” Vanguard Head of Public Relations John Woerth said in an emailed response to a question.
VWO’s new expense ratio matches the 0.18 percent cost of the iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG), but remains 3 basis points higher than the annual fee on the Schwab Emerging Markets ETF (NYSEArca: SCHE), which costs 0.15 percent a year.
As the slim to non-existent differences in the prices of the three funds above suggests, focus on ETF costs has intensified dramatically in the past few years, leading many journalists and analysts to characterize all the jockeying for bragging rights to the cheapest funds as a "fee war" of sorts. That said, Vanguard steadfastly insists it isn't part of any fee war, as it must lower fees as its funds gather assets because of its at-cost business structure.
The eight funds with lower expense ratios, the actual cuts and their assets under management are as follows:
- VWO, a 10 percent cut from 0.20 to 0.18 percent for the nearly $61 billion fund
- Vanguard MSCI Europe ETF (NYSEArca: VGK), a 14 percent cut from 0.14 to 0.12 percent, for the $5.88 billion fund
- Vanguard MSCI Pacific ETF (NYSEArca: VPL), a 14 percent cut from 0.14 to 0.12 percent for the $1.85 billion fund
- Vanguard Total International Stock ETF (NYSEArca: VXUS), an 11 percent cut from 0.18 to 0.16 percent for the $1.46 billion fund
- Total World Stock Index ETF (NYSEArca: VT), a 13.6 percent cut from 0.22 to 0.19 percent for the $2.08 billion fund
- Vanguard Global ex-U.S. Real Estate ETF (NYSEArca: VNQI), an 8.6 percent cut from 0.35 to 0.32 percent for the $635.8 million fund
- Vanguard FTSE All-World ex-US ETF (NYSEArca: VEU), a 16.7 cut from 0.18 to 0.15 percent for the $9.17 billion fund
- Vanguard FTSE All-World ex-US Small-Cap ETF (NYSEArca: VSS), a 10.7 percent cut from 0.28 to 0.25 percent for the $1.3 billion fund
Inside VWO's Fee Cut
VWO, the biggest emerging markets ETF in the world, with nearly $61 billion in assets, has enjoyed steady asset flows for the past several years. The lower expense ratio announced today by Vanguard is a function of asset gathering in the 12 months ended on Oct. 31 of last year.
During the one-year period in question, VWO’s assets grew 23 percent to more than $57 billion, according to data compiled by IndexUniverse.
Assets in VWO since then have climbed another 7 percent, and the actual price of the fund is thus now a bit lower than the 0.18 percent reported in the prospectus. However, Vanguard doesn’t parse such nuances, largely because most other fund companies don’t either.
“While the continued asset growth of VWO will likely result in additional savings, Vanguard will continue to report the fiscal year expense ratio figure, as is industry standard, so that investors may make apples-to-apples comparisons with peer ETFs,” Woerth said.
The general asset growth reflects the traction Vanguard continues to get in marketing its low-cost strategies. The company that John Bogle founded in the mid-1970s as an at-cost, mutually owned provider of investment products is now the biggest mutual fund company in the world, with $2.3 trillion in assets.
Vanguard gathered $53.38 billion in new assets in 2012—less than the $62 billion pulled in by San Francisco-based iShares, but Vanguard’s 2012 haul equates to a 21 percent growth clip, or nearly twice the pace of BlackRock’s iShares, the world's biggest ETF company.
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