Vanguard Cuts Expense Ratio As Fund Expense Wars Heat Up

Vanguard Cuts Expense Ratio As Fund Expense Wars Heat Up

Mutual funds have been steadily lowering their fees for decades in an effort to attract more investors as the sector has become increasingly crowded with competitors and amid competition with ETFs. Industry analysts note the “expense wars” between fund managers tend to ebb and flow based on market conditions, and with investors moving out of U.S. equities lately, fund firms have begun another round of lowering their expense ratios to try and attract new money. Related to this, mutual fund titan Vanguard announced this month that the expense ratios for 53 individual Vanguard mutual fund shares, including 21 ETFs, will be further reduced.

A statement from Vanguard announcing the reduction in fees notes that the firm’s average expense ratio has fallen close 80% over the last four decades, from 0.89% in 1975 (AUM of $1.8 billion) to 0.18% today (AUM of $3.2 trillion). The fund manager’s expense ratio was a notable 82% lower than the industry average in 2014.

Moreover, the firm’s ETF expense ratios have also come down around 60% since they were first offered to the public in 2004. The average expense ratio for Vanguard’s ETFs then was 0.22%, when Vanguard managed $6 billion in ETF assets, but today it has shrunk to 0.13%, and the company manages $484.7 billion in U.S. ETF assets.*

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Statement from Vanguard

A statement from the asset manager explains their motivation in reducing the fees for the mutual funds and ETFs: “Every dollar you pay in management fees or trading commissions is a dollar that isn’t available to generate potential returns. Minimizing costs is one thing you can control—and it’s why we focus relentlessly on reducing the cost of investing.”

“Vanguard continues to set the standard as the industry’s low-cost leader, reducing costs not just on a subset of products but across our funds and ETFs,” noted Vanguard chief exec Bill McNabb. “We have a track record of nearly 40 years of lowering the cost of investing for our clients, and we have every intention of continuing to lower the cost of investing.”

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