As the market marches toward recovery, ING DIRECT’s ShareBuilder 401(k) – an all-exchange traded fund (ETF) 401(k) plan provider – is feeling good about the year that just wrapped and the year that lies ahead.

“We had a great year last year and beat all our forecasted numbers,” says Stuart Robertson, general manager and principal. “We’re definitely seeing small businesses coming back. That’s a good sign; they’re feeling more and more financially stable.”

The pickup in business has improved into the new year so far, as well.

“We think given the economic data, this year should be better than last.”

One reason for the optimism could be that the provider recently added four low-cost Vanguard ETFs to its lineup as part of its regular review of the offerings.

“We’re a registered investment advisor and we serve as the investment manager for all our plans, so we review the lineup with the investment policy on a regular basis,” says Robertson.

ShareBuilder’s Investment Committee reviews its offerings quarterly to see whether the funds are satisfying the investment policy’s core objectives on diversification and low cost. If improvements can be made, then that’s what happens.

Vanguard made the cut, at least in part, for its growing presence on the ETF scene.

“Vanguard has been a very strong player in ETFs. They’re the third-ranked provider and growing faster than other ETF providers,” at least in 2010, says Robertson.

But ShareBuilder 401(k) also considered the makeup of Vanguard’s funds, their expense ratio, market cap, tracking error and whether a particular fund makes sense to be in the plan. Using that and other evaluative criteria, ShareBuilder 401(k) found four Vanguard funds with small bid-ask spreads and strong performance that would align well with the plan’s objectives:

  • Vanguard Total Bond Market (NYSEArca: BND)
  • Vanguard REIT ETF (NYSEArca: VNQ)
  • Vanguard MSCI Emerging Market (NYSEArca: VWO)
  • Vanguard Europe Pacific (NYSEArca: VEA)

Adding in Vanguard’s low-cost funds had another benefit for the plan: it lowered the average by a whopping 27%, from 0.26% to 0.19%. That’s no small thing: small amounts add up over decades of investing.

Lower expenses might attract more assets to ETF providers that offer them, but the real beneficiary ultimately is the investor.

“It will be good for the industry,” Robertson says. “Everyone will have to work harder to keep expenses low.”

For full disclosure, Tom Lydon’s clients own shares of VEA.

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