This year ETF providers have been going toe-to-toe in the so-called fee war. It doesn’t look like the round of fee cuts is over quite yet as Vanguard slashes expense ratios on over 20 of its ETF offerings.
“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,” Vanguard said in a press release. “Economies of scale and a focus on keeping operating costs low have resulted in a long track record of Vanguard lowering costs across the board.” [Investors Like ETFs’ Low Fees, Liquidity]
According to the investment manager, its average ETF expense ratios fall around 0.17%, compared to the industry average of 0.55%.
“Our clients are our only stakeholders,” Vanguard added.
Looking at the ETF industry from outside, observers may see a kind of fee war taking shape as fund providers try to outdo one another. However, expense ratios also change based on the cost of managing the funds. For instance, expenses can fall as a result of economies of scale due to an increase in a fund’s total assets or cash flow, whereas a drop in assets can cause the expense ratio to increase. [ETF Fee War: The High Cost of Low Price]
After Vanguard’s aggressive cost cutting strategy, the fund provider has been experiencing robust inflows and is on track to become the fastest growing U.S. ETF provider for a third year running. In November, Vanguard had the largest ETF/ETP inflows with $7.7 billion. [U.S. Stock ETFs Remain Popular Amidst Fiscal Cliff Talks]
Vanguard recently reduced the expense ratios on 22 ETFs ranging across various asset classes:
For more information on the ETF industry, visit our current affairs category.
Max Chen contributed to this article.