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Vanguard Intensifies ETF Fee War Again

Sanghamitra Saha

Social Finance Inc., an online lender also known as SoFi, recently made headlines by proposing two ETFs that waived off managed fees for at least the first year of operation. However, Vanguard stole its thunder by slashing fees on 10 of its exchange-traded funds, according to regulatory filings soon after (read: Zero-Fee ETFs to Hit the Market Finally?).

Eight of the 10 Vanguard ETFs that underwent fee cuts are international-focused, and fee reductions range from one to two basis points, per the source. Below we highlight those ETFs and the changes in expense ratios. As many as 51 Vanguard ETFs now charge 0.10% or less.

Vanguard FTSE Emerging Markets ETF (VWO) - from 14 to 12 bps
Vanguard FTSE Europe ETF (
VGK) - from 10 to 9 bps
Vanguard FTSE Pacific ETF (
VPL) - from 10 to 9 bps
Vanguard FTSE All-World ex-US ETF (
VEU) - from 11 to 9 bps
Vanguard FTSE All-World ex-US Small-Cap ETF (
VSS) - from 13 to 12 bps
Vanguard High Dividend Yield ETF (
VYM) – from 8 to 6 bps
Vanguard Total World Stock ETF (
VT) – from 10 to 9  bps
Vanguard Tax-Exempt Bond ETF (
VTEB) – from 9 to 8 bps
Vanguard Total International Bond ETF (
BNDX) – from 11 to 9 bps
Vanguard Total International Stock ETF (
VXUS) – from 11 to 9 bps

These ETFs form about 20% of Vanguard’s $5.3 trillion total assets and were responsible for more than 35% of its net cash flows over the past three years, per a Vanguard spokesman. This makes it clear that these ETFs are key money-spinners and Vanguard needs to stay competitive fee-wise to continue to attract investors.

For instance, in the emerging market (EM) space, VWO tops asset-wise, followed by BlackRock’s iShares Core MSCI Emerging Markets ETF's IEMG (which charges 14 bps). In fact, we echo Eric Balchunas’, senior ETF analyst at Bloomberg Intelligence, opinion that VWO now charges 2 bps lower than IEMG. This should help VWO in maintaining its lead over IEMG in the near term.

In the EM space, the least pricey ETF is SPDR Portfolio Emerging Markets ETF SPEM which charges 11 bps. Eric Balchunas has tweeted that SPEM witnessed organic growth of about 42% in AUM last year after its cut, “proving once again that every bp counts.”

In addition to the ETFs, Vanguard has also reduced the expense ratios on 27 mutual fund share classes. Vanguard spokesman Freddy Martino said that “the aggregate cost savings returned to clients across the group of mutual funds and ETFs involved in the current fee reduction is $55 million”.

Investors should note that Fidelity Investments stirred up the entire industry when it started the first free mutual funds last year and witnessed assets in those products hitting the $1 billion mark fast. We expect the trend to continue in the coming days. More fee cuts are likely across the asset segments from different issuers (read: Vanguard Action to Make ETF Investing More Affordable).

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Vanguard FTSE All-World ex-US Small-Cap ETF (VSS): ETF Research Reports
 
Vanguard FTSE Pacific ETF (VPL): ETF Research Reports
 
Vanguard Tax-Exempt Bond ETF (VTEB): ETF Research Reports
 
Vanguard FTSE Emerging Markets ETF (VWO): ETF Research Reports
 
Vanguard Total International Stock ETF (VXUS): ETF Research Reports
 
Vanguard FTSE Europe ETF (VGK): ETF Research Reports
 
Vanguard High Dividend Yield ETF (VYM): ETF Research Reports
 
Vanguard FTSE All-World ex-US ETF (VEU): ETF Research Reports
 
Vanguard Total World Stock ETF (VT): ETF Research Reports
 
iShares Core MSCI Emerging Markets ETF (IEMG): ETF Research Reports
 
SPDR Portfolio Emerging Markets ETF (SPEM): ETF Research Reports
 
Vanguard Total International Bond ETF (BNDX): ETF Research Reports
 
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