Select Sector, Vanguard Trim ETF Expenses

Major exchange-traded fund groups continue to cut costs for investors

The nine Select Sector SPDRs, which slice the S&P 500 by industry sectors, have had their annual expense ratios trimmed from 0.20 percent to 0.18 percent.

"The economy notwithstanding, 2011 was a banner year for us, both in terms of the increase in our average assets and the growth in our overall year-end assets," said Dan Dolan, director of Wealth Management Strategies for the Select Sector SPDR Trust, in a press release.

The average monthly assets in the Sector SPDRs increased by 32 percent and are currently around $44 billion.   

"With the markets especially choppy last year, investors sought safe havens in defensive sectors like utilities (XLU), consumer staples (XLP), and health care (XLV), using the Select Sector SPDRs as equity substitutes to reduce single stock exposure."

Launched in 1998, Select Sector SPDRs is the oldest brand name in sector ETFs and the funds average weekly trading volume of about one billion shares

Vanguard Cuts Expenses on 19 ETFs

Vanguard recently filed annual prospectus updates and  cut expenses for 19 ETFs, while eight ETFs had modest increases (see the next page for a complete listing of the changes).

Bond ETFs like the Vanguard Short-Term Corporate Bond Fund (VCSH), Intermediate-Term Corporate Bond Fund (VCIT) and the Long-Term Corporate Bond Fund (VCLT) had annual fee cuts from 0.15 percent to 0.14 percent.

For those ETFs where expense ratios increased, it was due to "acquired fund fees and expenses" (AFFE) that result from ownership of business development companies (BDCs).

Although the SEC requires that BDC costs be included in a fund's expense ratio, these fees are not incurred by the fund. They have no impact on a fund's total return or on its tracking error relative to an index. The financial statements in each fund's annual or semiannual report provide an annualized calculation of the fund's actual expenses for the period, a more accurate tally of the operating costs incurred by shareholders. Several Vanguard ETFs own shares of BDCs because the BDCs are included in the ETFs' target indexes.

Vanguard ETFs/ New Expense Ratios

 --S&P Mid-Cap 400 (IVOO) - 0.17%

--S&P Mid-Cap 400 Value (IVOV) - 0.24%

--S&P Small-Cap 600 (VIOO) - 0.16%

--S&P Small-Cap 600 Value (VIOV) - 0.22%

--Russell 1000 Value (VONV) - 0.16%

--Russell 2000 (VTWO) - 0.22%

--Russell 2000 Value (VTWV) - 0.33%

--Russell 3000 (VTHR) - 0.16%

--Mega Cap 300 (MGC) - 0.12%

--Mega Cap 300 Growth (MGK) - 0.12%

--Mega Cap 300 (MGV) - 0.12%

--Short-Term Corporate Bond (VCSH) - 0.14%

--Short-Term Government Bond (VGSH) 0.14%

--Intermediate-Term Corporate Bond (VCIT) - 0.14%

--Intermediate-Term Government Bond (VGLT) - 0.14%

--Long-Term Corporate Bond (VCLT) - 0.14%

--Long-Term Government Bond (VGLT) - 0.14%

--Consumer Discretionary (VCR) - 0.19%

--Consumer Staples (VDC) - 0.19%

--Energy (VDE) - 0.19%

--Financials (VFH) - 0.23%

--Health Care (VHT) - 0.19%

--Industrials (VIS) - 0.19%

--Information Technology (VGT) - 0.19%

--Materials (VAW) - 0.19%

--Telecommunications Services (VOX) - 0.19%

--Utilities (VPU) - 0.19%

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