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Vanguard Not Satisfied with Record Inflows, Eyes ETF Fee Cuts


Vanguard has been the fastest growing exchange traded fund provider so far this year as investors flock to its low-cost ETFs. Incoming chief investment officer Tim Buckley has pledged the firm won’t let its ETFs be undercut on price, and now the fund provider is putting its money where its mouth is.

Vanguard has already gathered record inflows in 2012 with a $113 billion haul. The previous high was $104 billion in 2007, Bloomberg News reports.

In ETFs, Vanguard added $41.8 billion this year through Sept. 24, compared to $33.3 for BlackRock and $25.9 for State Street Global Advisors , according to a Pensions & Inestments article. The three firms are the largest ETF providers.

“We’re pleased that investors recognize Vanguard as the low-cost fund leader and continue to entrust assets to us,” John Woerth, a spokesman for Vanguard, said in the Bloomberg article.

On average, Vanguard’s ETF products have a 0.17% expense ratio and its cheapest offering comes with a 0.05% annual fee.

The fund provider has built its business on low-cost, passive management, which has been growing in popularity in recent years after many active managers failed to deliver alpha.

“Vanguard owns the low-cost attribute in the public’s minds,” Don Phillips, president of Morningstar’s investment research division, said in a Reuters article.

For example, Vanguard’s ETF market share has expanded 29% in just the last two years, accounting for 17.9% of the overall space at the expense of competitors like BlackRock, which has seen its market share drop to 40.6% from 46.6% over the same period, according to the report.

Vanguard’s low-cost model has not gone unnoticed as other companies are now beginning fight back with fee cuts of their own. BlackRock CEO Larry Fink previously announced the firm will cut fees on a number of ETFs to better compete. More recently, Charles Schwab cut expenses by as much as 59%, with one ETF down to a 0.04% expense ratio. [ETF Fee Cuts: Almost a ‘Free Lunch’]

Nevertheless, Vanguard will not sit idly by as the price war escalates. The firm is now swapping out underlying ETF indices in favor of low cost alternatives, which the firm says will trickle down as savings for investors. [Vanguard Benchmark Trade Shakes Up Index Industry]

“If you undercut us today, be prepared to do it again tomorrow,” Tim Buckley, the incoming CIO at Vanguard, said in the Reuters article. “We won’t just lower costs on one or two funds, we will do it across the board.”

Sounds like fighting words.

For more information on the ETF industry, visit our current affairs category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.