Vanguard To Reverse-Split VOO

By
Cinthia Murphy
September 11, 2013
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The firm looks for new ways to lower transaction costs on its S&P 500 ETF even further.

Vanguard, the Valley Forge, Pa.-based fund provider known for its at-cost model, said today it will do a 1-for-2 reverse share split on the Vanguard S&P 500 ETF (VOO| A - 96 ) in an effort to lower overall transaction costs for the fund.

Effective Oct. 24, the reverse split will essentially double the price for shares of the $11 billion VOO, but decrease by half its number of outstanding shares. That will lower per-share transaction costs for the fund because it will make its already-competitive spreads—currently an average of 0.01 percent of the share price—even lower, a company representative told IndexUniverse.

VOO is already one of the cheapest ETFs in its segment, with an expense ratio of 0.05 percent—$5 for each $10,000 invested—and massive liquidity of more than $150 million in volume most days. That compares with funds like the SPDR S&P 500 ETF (SPY| A-99), which costs 0.09 percent, and the iShares Core S&P 500 ETF (IVV| A-99), which charges 0.07 percent in annual fees. But like VOO, both SPY and IVV show average spreads of 0.01 percent, according to data compiled by IndexUniverse.

“Our goal is to lower transaction costs for investors,” a company representative told IndexUniverse, who also noted this is the first time Vanguard has decided to do a reverse split on an ETF.

Pushing to lower costs is very much emblematic of how Vanguard—now the biggest mutual fund company in the world—has positioned itself. But the move also speaks to the increased maturity of ETFs and ETF trading, highlighting the reality that a fund's overall cost to investors goes well beyond expense ratios alone.

The reverse split is not expected to result in a taxable transaction for most shareholders, but it could cause some VOO shareholders to end up with fractional shares, which will be redeemed for cash—a transaction that could amount to taxable gains or deductible losses, the company noted in a press release.

 

ETF DAILY DATA

The S&P 500 funds 'SPY' and 'IVV' led inflows on Thursday, Feb. 26, as total U.S.-listed ETF assets dipped to $2.094 trillion

'SPY,' 'MDY, 'XLF' and 'XLY' paced SSgA's issuer-leading inflows on Thursday, Feb. 26, as total U.S.-listed ETF assets fell to $2.094 trillion.

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