Vanguard Cuts ETF Fees… Again

Vanguard announced this week yet another reduction in ETF fees on some of their major funds:

Earlier this month, Vanguard shaved its fees on four of its popular ETFs. Those were:

  • Growth ETF (AMEX: VUG), from 0.11% to 0.10%.
  • Value ETF (AMEX: VTV), from 0.11% to 0.10%.
  • Small-Cap Growth ETF (AMEX: VBK), from 0.12% to 0.11%.
  • Small-Cap Value ETF (AMEX: VBR), from 0.12% to 0.11%.

Also, the new Europe Pacific ETF (AMEX: VEA) wound up the year at 0.12%. The fund opened last July and was expected to assess expenses of around 0.15%.

“We originally estimated an annualized expense ratio at higher levels,” said Rebecca Cohen, a Vanguard spokesperson. “But after the year closed out, expenses wound up being less than originally estimated.”

While relatively tiny moves, the latest changes further distances Vanguard’s ETF lineup from the pack. It also brings to 18 the number of different ETFs that Vanguard has cut expense ratios on within the past four months.

The flurry of cost-cutting leaves Vanguard with an average expense ratio at 0.16%. Through year-end 2007, Lipper data showed an average ETF in the U.S. with an expense ratio of 0.53%.

“As ETFs grow in size, they generally become more efficient to run,” said Vanguard in a statement.

As a shareholder-owned company, Vanguard says its “policy has always been to pass the savings from those efficiencies through to investors. The new expense ratios reflect the lower costs of managing these products.”

This is why I am such a loyal customer of Vanguard and Vanguard financial products.  Their entire brand promise is around minimizing management costs for investors, and as a result, they proactively reduce rates constantly.  Unlike other institutions that use low fees as a short term “loss leader” to bring in assets, Vanguard genuinely strives for the lowest costs structure, and passes those savings on to their investors.

The idea that you can now buy an index of small-cap, domestic, growth companies for 11 basis points a year is just amazing.  11 basis points!  That means if you had $10,000 invested, the annual overhead cost would be just $11.   And that’s for a fairly focused index – I believe the broad based US domestic stock index ETF from Vanguard is down to just 7 basis points!

When at all possible, I tend to go with the Vanguard index ETF/Fund.  In fact, since many brokerages (like Fidelity) charge exorbitant commissions on the Vanguard funds,  you can now just buy the ETFs like any other stock.  Pay a cheap commission once, and pay cheap expenses for decades.

Hard to beat a great product with a great cost from a great firm.  Hard to beat.