The asset-weighted average expense ratio for ETFs is 0.32%—significantly less than the simple average of 0.56%.* Similarly, the asset-weighted average spread is a negligible 0.04%—a far cry from the 0.31% industry figure.**

“Investors are voting with their dollars by selecting the products that offer the lowest costs,” Mr. Dickson said.

As for why industrywide cost averages for ETFs have been creeping up, Mr. Dickson explained that the number of narrowly focused, niche ETFs has proliferated in recent years. These less liquid ETFs carry higher costs that push up industry averages. But they tend to be smaller in size, so they have less impact on the asset-weighted figures.

For more information about the relationship between cash flow and costs, read Costs matter: Investors are still voting with their feet.

*Sources: Vanguard analysis of data provided by Bloomberg and Morningstar Direct, as of March 31, 2012.

**Sources: Vanguard analysis of data provided by Bloomberg and ArcaVision, as of March 31, 2012.


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