Vanguard To Launch EAFE ETF?!

May 21, 2007

THIS story just has BIG written all over it. The iShares EAFE fund (EFA) is one of the most successful ETFs in history (and the SECOND largest currently, and has pulled in $45 Billion in assets. At 35 basis points. Good lord.

I JUST ran that data search. I didn't know it had gotten that big. I was thinking maybe $30 billion and 3rd biggest. Well, I can do the math on $45 billion X 0.35% and that is (urp) $157 million dollars. A year. That fund is printing money for BGI. It's one of the main engines driving the iShares train.

The first time I heard the news of the Vanguard EAFE today was from John Spence of DJ Marketwatch, who'd just come across the news and wanted to do a quick story. John (who used to work for IndexUniverse.com for those of you who don't know) occassinally gets them before us.

So Vanguard (which already has an Asia and a Europe ETF) launching an EAFE ETF really is a frontal assault (I gave that line to Matt Hougan who led his article with it - I'd given it to Spence as a possible quote).

But IS it an EAFE fund? It's tied to their tax-managed fund. Matt did a great job looking at it in his article that's running at the top of www.indexuniverse.com right now. A quick glance at that data tells me it's curious. The iShare is performing within it's expense ratio, which tells me they're aggressively managing it. The Vanguard fund, relative to its ER lags, which tells me that it's giving something for the tax management. Ah - and also, likely that's a reflection of the investor share class ER (though surprisingly that is only at 0.20% (no admiral shares available.

Curious. It's interesting also tying the ETF to a tax-managed fund. It's likely better than putting an ETF share class into a large straight index fund, because the ETF share class will get less of the capital gains overhang & be closer to a "pure" ETF on the tax efficiency issue, which may be somewhat overblown, but is real. I wrote a couple decent articles on that.

Putting the ETF Tax Efficiency Debate to Rest

Qualified Dividends Redux

Anyway - BIG story - almost as big as the story that Vanguard has quietly begun to sneak up on BGI - and even had more inflow than BGI in Q1, which to me is a very big story indeed. And I love to see the competition, because ultimately it's good for all of us as investors.

 

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