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Portfolio > ETFs

Vanguard Drops Commissions on Its ETFs

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Vanguard says that it will now cost even less for some investors to trade its ETFs.

The fund giant announced May 4 that its brokerage clients can now trade any of its 46 ETFs without paying a commission.

They can also avoid commissions and pay less than before to trade non-Vanguard ETFs and stocks, depending on how many trades they make in a year and the amount of assets held in Vanguard ETFs and other funds.

Also, these commissions are the same for transactions conducted online at or with the assistance of a Vanguard brokerage representative, the company says.

“For 35 years, Vanguard has been committed to reducing the cost of investing in mutual funds for our clients. Now, Vanguard is expanding our low-cost commitment to ETFs,” said Vanguard CEO Bill McNabb in a statement. “Importantly, Vanguard offers a greater choice of ETFs with expense ratios that are among the lowest in the industry.”

According to Lipper data from December 2009, the average expense ratio of Vanguard ETFs is 0.18% vs. the industry average of 0.52%, the company notes.

While the free and low-commissions trades can be used by clients to rebalance portfolios, the company hopes investors won’t trade more frequently because it has become less expensive to do so.

“To be clear, our commission-free offer is not intended to encourage the active trading of ETFs, which we believe is counterproductive and rarely successful. Rather, it enables investors to construct a balanced, long-term portfolio of low-cost Vanguard ETFs and add to the portfolio regularly,” said McNabb.

Vanguard says cash flows into its low-cost ETFs total about $11.7 billion through April 29, 2010, according to Bloomberg data.

Furthermore, the firm’s ETF assets have more than doubled over the past year and now stand at more than $100 billion, the company says.

Its Vanguard Total Stock Market ETF (VTI) has $15 billion in assets, the Vanguard Emerging Markets ETF (VWO) has $24 billion, and the Vanguard Total Bond Market ETF (BND) has $7 billion, according to Bloomberg data.

ETF rival BlackRock said its iShares ETFs had nearly $510 billion in AUM as of March 2010.


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