Vanguard Cuts Fees on 87 Funds

“At Vanguard, we’re focused on creating value for our investors, not extracting value from them. We’re proud to build on Vanguard’s legacy of lowering the costs of investing — which we have done more than 2,000 times since our founding — by announcing our largest ever set of expense ratio reductions. Lower costs enable investors to keep more of their returns, and those savings compound over time," he said.

Vanguard noted its index and active products have low costs across all asset classes, covering equity, bond, money market and multi-asset solutions. Those lower costs have enabled 84% of Vanguard funds to outperform their peer group averages over the past decade, the company said, adding that the new expense ratio reduction will allow clients to achieve even greater long-term returns.

“Vanguard’s strength as an industry-leading active manager and index pioneer has only grown over the years, in part due to our low costs,” Vanguard President and Chief Investment Officer Greg Davis said. “When thinking about our actively managed funds, our portfolio managers can take investment risk strategically as they don’t have to overcome the hurdle of high fees to add value.”

In addition to Vanguard’s lineup of bond mutual funds and ETFs, these expense ratio reductions will lower costs across Vanguard’s U.S. equity, international equity and money market funds as well.

Jeff DeMaso, editor of the Independent Vanguard Adviser, called the move "a nice win for investors. It's also a nice win for the new CEO, Salim Ramji, as it demonstrates that he's continuing the tradition of lowering costs."

In addition, DeMaso told ThinkAdvisor by email, "it's a great time to be an index investor. But, the race to zero has been run. For example, Total International Stock ETF's expense ratio dropped from 0.08% to 0.05%. That's a win — and I cheer lower fees — but we were already scraping the bottom of the barrel.

"Third, while other companies — think iShares, Fidelity, Schwab — compete with Vanguard on index fund — and ETF — fees, Vanguard remains the low-cost leader for active funds. It's not even close, and Vanguard continues to press its advantage," DeMaso said.

Daniel Sotiroff, senior manager research analyst at Morningstar, described the cuts as both good public relations and, given that Vanguard takes in more money than its competitors, a legitimate move to pass along the savings to investors.

“This is a little timely given everything that's been going on at Vanguard over the last year or so," Sotiroff said, noting that many people had questions about the company's direction after it hired its first outsider CEO last year. In addition, he noted, Vanguard recently agreed to pay $106.4 million to settle charges related to clients' capital gains tax laibilities in certain target date funds, and has added fees to customers who call in to trade funds, he said.

The median fee cut is one basis point, so it's not huge, Sotiroff said. Collectively it saves money for clients but isn't big enough to prompt investors to leave a competitor to go to Vanguard, he said, noting that many Vanguard funds already are the cheapest in the industry. “It’s a great gesture," the analyst said.

Vanguard noted that its fixed income group is the largest bond mutual fund and ETF manager, and said its actively managed fixed income funds and ETFs, have a 0.10% weighted-average expense ratio, compared with a 0.53% industry average from other firms. Vanguard said 91% of its active bond funds and ETFs outperformed their peer group average over the past decade. It's bond index funds also carry lower expense ratios, the firm noted.

“Bonds are poised to play a crucial role in investors’ portfolios going forward,” Davis said. “We expect yields to settle at levels higher than those seen over the past 15 years. This will not only provide attractive inflation-adjusted income, but also reinforce the traditional role of bonds as the ballast in investors’ portfolios.”