The news media have proclaimed another ETF “fee war.” Providers are “slashing prices” and waging an “arms race.” I get it, and it makes for a compelling story.
In the battle for ETF market share, some firms are tactically pricing selected funds to grab a headline with a loss leader or seeking a low-cost halo that they hope will shine on their other products.
At Vanguard, low costs are not about headlines or halos. You and your clients can benefit from our across-the-board, all-the-time low-cost leadership regardless of how you interact with Vanguard: ETFs, stock funds, IRAs, variable annuities, 401(k) plans, bond funds, 529 plans, and money market funds.
The natural question to ask is if we’ll respond by cutting prices. We anticipate we will, but not today or tomorrow. And not in response to losing market share or for bragging rights.
Lowering the cost of investing is in our DNA. And we’ve been doing it consistently and continually for 40 years. How does it work? Vanguard is owned by our funds, which, in turn, are collectively owned by the fund shareholders. It’s a structure that enables us to pass along economies of scale and reduce expense ratios as fund assets grow. The competitors may be able to match on price on some products, but they can’t match our structure.
The proof is in the pudding. When I joined Vanguard in 1988, our average expense ratio was 0.46% and our flagship index fund—Vanguard 500 Index Fund—carried an expense ratio of 0.22%. Today those figures are 0.18% and 0.05% (for Admiral™ and ETF Shares), respectively as of year-end 2014.
Will you see lower Vanguard fund and ETF expense ratios in the future? If history is any guide, we expect so. It has happened nearly every year.
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