Vanguard, the No. 2 exchange-traded fund company by assets, cut the annual expense ratio on its nearly $5 billion payout fund, the Vanguard High Dividend Yield ETF (VYM) by 23 percent, a function of asset growth in the past year that improved economies of scale.
Effective Feb. 22, 2013, VYM’s annual expense ratio dropped to 0.10 percent from 0.13 percent, Valley Forge, Pa.-based Vanguard said in a press release. That means the fund’s annual management fee amounts to $10 for each $10,000 invested.
The new fee is a function of asset growth in the fund’s fiscal year ended October 2012, and was detailed in a regulatory filing Vanguard made on Feb. 22.
Assets in VYM more than doubled to $4.2 billion in the 12-month period ended Oct. 31 of last year, according to data compiled by IndexUniverse—a broad reflection of how popular dividend-focused equity strategies have become in the past few years given how yields on all kinds of bonds have remained low as the recovery from the 2008 crash slowly proceeds.
In a more tightly focused frame of reference, VYM’s asset growth reflects the traction Vanguard continues to get in marketing its low-cost strategies. The company that John Bogle founded in the mid-1970s as an at-cost, mutually owned provider of investment products is now the biggest mutual fund company in the world, with $2.3 trillion in assets.
It gathered $53.38 billion in new assets in 2012—less than the $62 billion pulled in by San Francisco-based iShares, but at a 21 percent growth clip, or nearly twice the pace of BlackRock’s iShares, the world's biggest ETF company.
“Other investment firms may lower costs as a business strategy to attract assets,” Vanguard said in the press release. “Since we are a mutually owned firm, low costs are an outcome that is directly tied to how much it costs us to manage our funds. Economies of scale and a focus on keeping operating costs low have resulted in a long track record at Vanguard of lowering costs across the board.”
The company did note, however, that the virtuous cycle of lowering costs can turn the other way when assets in a given strategy decline.
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