For the fifth time since December, Vanguard cut the expense ratios of mutual funds and ETFs. The latest round affects 82 funds and ETFs, many with multiple share classes, including the world’s largest stock fund, the Vanguard Total Stock Market Index Fund, and the world’s largest bond fund, The Vanguard Total Bond Market Index Fund.
The cuts ranged from a half a basis point (0.005%) for the Institutional share class of the Total Stock Market Index Fund (VITSX) to four basis points (0.04%) for Value Index Fund Investor and Managed Payout Fund. Most expense ratios were cut one to two basis points.
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To date, Vanguard’s five rounds of fee cuts have resulted in an estimated $324 million in savings on 221 index and actively managed and ETF shares.
In addition to the expense cuts, Vanguard raised the expense ratio on the investor and institutional share class of the actively managed Vanguard Market Neutral Fund by 14 and 16 basis points, respectively.
A full list of the fee changes can be found on the Vanguard website.
The five founds of expense rate cuts since December have saved investors $324 million across 221 index and actively managed fund and ETF shares, according to Vanguard. In comparison fees were raised for eight funds during in four rounds since December.
Another round of changes in expense ratios is scheduled to be announced in May, according to a spokesman. The separate rounds of cuts relate to the fiscal year ends for clusters of funds.
Todd Rosenbluth, Director of Mutual Fund & ETF Research with CFRA, said Vanguard has been able to cut fees on ETFs because of strong inflows, and the lower costs will further inspire advisors and investors to shift to passive funds given the “performance challenges for actively managed equity funds.”
But Rosenbluth counsels that advisors and investors need to look beyond expense ratios and to what assets ETFs hold. For example, noted Rosenbluth, the Vanguard FTSE Developed Markets ETF (VEA), which charges 7 basis points, down from 9, is just one basis point cheaper than iShares Core MSCI EAFE (IEFA), but year-to-date IEFA has gained 11.2% while VEA has gained 10.4%. VEA has greater exposure to Canadian stocks while IEFA has greater exposure to Germany.
Investors need to focus not just on the cheapest or the largest ETF but also “the one that offers the exposure that makes sense for their goals,” said Rosenbluth.
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