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.