Low-Cost Vanguard Attracts Billions in Assets

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.
[Stock traders]

Vanguard, one of the world’s largest mutual fund companies, also has carved out a strong niche as a provider of exchange-traded funds (ETFs) that fit the investment firm’s focus on keeping its management expenses low.

In 2013, Vanguard’s funds incurred an average expense ratio of 0.19%, compared to the industry average expense ratio of 1.08%, according to Lipper, which provides fund information and analysis. A low expense ratio has been a hallmark of Vanguard funds since the company’s launch in 1975.

Vanguard’s ETFs actually are regarded within the investment company as a share class of its mutual funds. Those ETFs combine the benefits of low cost and diversification provided by investing in indexes, along with the opportunity to know the share price at a given moment before selling shares. In contrast, a mutual fund prices its shares at the end of the trading day, and an investor is forced to accept that sale price without knowing it when the sell order is placed.

In addition, the expense ratios of Vanguard’s ETF shares align with the expense ratios of the company’s lowest-cost mutual funds. Vanguard’s lowest-cost mutual fund class consists of “admiral” shares, which require a minimum $10,000 investment to buy most of its index-based mutual funds. In contrast, Vanguard’s ETFs that are tied to the same indexes only require a minimum investment of $1,000.

Based on the advantages that ETFs offer, you can understand why I am such an avowed proponent of these investments, compared to mutual funds. I clearly am not alone, since Vanguard has seven of the world’s top 20 ETFs, based on the amount of assets that they hold. Below is a table that shows Vanguard’s 10 largest ETFs, based on asset size.

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Ticker Name YTD % Assets (MLN) Expense Ratio
VWO Vanguard Emerging Markets ETF 1.39 46,906.58 0.15
VTI Vanguard Total Stock Market ETF 5.55 45,763.98 0.05
VEA Vanguard Europe Asia Pacific (4.63) 23,071.61 0.09
VNQ Vanguard REIT ETF 11.29 22,958.28 0.10
BND Vanguard Total Bond Market ETF 2.35 22,814.43 0.10
VOO VANGUARD S&P 500 ETF 6.76 21,814.19 0.05
VIG Vanguard Dividend Appreciation ETF 2.27 19,920.89 0.10
VUG Vanguard Growth ETF 7.11 15,547.28 0.09
VTV Vanguard Value ETF 6.30 15,471.22 0.09
BSV Vanguard Short Term Bond ETF 0.18 14,944.13 0.10

Vanguard Emerging Markets ETF (VWO), which is the largest ETF among the investment firm’s offerings, has notched a return of 1.39% so far this year. The fund also offers a highly cost-effective expense ratio of just 0.15%, which Morningstar Inc. reports is 90% less than the average expense ratio of emerging market funds in general. This ETF Talk begins a series that we will be offering in the coming weeks that focuses on Vanguard’s largest ETFs. The chart below reflects the VWO fund’s performance for the past 12 months.

VWO_100814

In case you missed it, I encourage you to read my e-letter column from last week about a PowerShares ETF that screens its holdings with the intent of boosting returns significantly. I also invite you to comment in the space provided below.

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful ETF Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an e-mail. You just may see your question answered in a future ETF Talk.

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On Tuesday, the IMF lowered its global growth forecast for 2015, while also issuing a warning about the risks posed by increasing geopolitical tensions, as well as by an equity market trading at what it described as “frothy” levels.

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