VWO Expense Ratio Drops, Matches SCHE

February 27, 2014

However, in the given 12-month period ended in Oct. 31, 2013, other share classes of the Vanguard emerging markets portfolio—notably “Admiral” and “Signal” that are focused on institutional investors—had inflows during those 12 months that offset the outflows from VWO, a Vanguard representative told ETF.com.

That likely reflects the general stickier nature of mutual fund assets relative to ETFs, the representative said—an interesting distinction that speaks to the intraday tradability of ETFs. By comparison, an open-end mutual fund can only price after the market close.

For the record, flows into the four other ETFs with lower expense ratios—namely, VSS, VNQI, VXUS and VTI—were all positive, as were flows into the other asset classes.

Differing Fee Structures

As noted, all of Vanguard’s funds use the “nonunitary” fee structure by which expense ratios are governed by asset flows.

Most funds also market strategies with such a structure, though some—including the Nos. 1 and 2 ETF sponsors iShares and State Street Global Advisors—use both the “nonunitary” fee structure and the “unitary” fee structure that requires executive action on the part of the funds’ governing board to actually change an expense ratio.

Again, the declines in expense ratios on the five Vanguard funds including VWO were based on positive asset flows for the 12 months ended Oct. 31, 2013. That means that, say, VWO’s actual expense ratio today is likely different than the stated number today.

That said, fund companies must report asset flows to the Securities and Exchange Commission, and Vanguard detailed its asset flows for the 12-period in a filing with SEC dated today—Feb. 27, 2014.


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