Vanguard Cuts Fees On Sector Equity ETFs
December 23, 2011
(Updated with comment from Vanguard spokeswoman and to make clear that fee cuts have gone into effect.)
Vanguard, the money-management firm behind the world’s-biggest developing markets exchange-traded fund, lowered, mostly by about 20 percent, expense ratios on its family of sector funds, which will result in its undercutting most of State Street Global Advisors’ competing sector funds.
Most of the fee cuts by Valley Forge, Pa.-based Vanguard reduced fund costs for investors to 0.19 percent, from their former levels of 0.24 percent. That means they are now cheaper than most of the popular sector funds SSgA has had so much success marketing in recent years. Those ETFs sponsored by Boston-based State Street mostly cost 0.20 percent.
One notable exception is that the 4-basis-point, 15 percent, decrease in the annual cost of its Vanguard Financials ETF (NYSEArca: VFH) is not enough for the fund to beat out SSgA’s huge Financials Select Sector Fund (NYSEArca: XLF). XLF, a $5 billion fund, has an annual expense ratio of 0.20 percent – again like most SSgA sector funds. Vanguard’s VFH, meanwhile, now has a total expense ratio of 0.23 percent.
Unlike Schwab, which is unfailingly explicit about its strategic aim of competing on price, Vanguard is loathe to frame its low-cost ETFs in such terms, emphasizing instead that its mutual structure requires it to run funds at cost.
“With Vanguard's ongoing commitment to lowering costs for investors, aided by our at-cost structure, we are able to lower our already-low expense ratios when funds reach certain economies of scale and other factors,” Vanguard spokeswoman Linda Wolohan said in an e-mailed response to a question. She was alluding to the success Vanguard’s sector funds have had in gathering assets.
The growth of funds assets allows fund sponsors to spread the mostly fixed costs of running a given portfolio across a bigger base of fund holders, which, in turn, allows the firm to lower costs for each investor in its funds.
A look at fund flows data compiled by IndexUniverse shows that the Vanguard funds in question have, for the most part, been hauling in fresh assets, even if roiled financial markets have knocked down assets under management. That’s no surprise, as Vanguard, the No. 3 U.S. ETF firm by assets, led all firms in asset gathering in 2010, and has mostly been at the top of monthly league tables this year too.
Vanguard filed with the Securities and Exchange Commission on Tuesday, Dec. 20 outlining the changes.
The Proposed Price Cuts
The old expense ratios were all still posted on Vanguard’s website as of Friday, Dec. 23.
Again, most of SSgA’s sector funds, like XLF, have annual expense ratios of 0.20 percent, according to State Street’s website.
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