In the latest salvo in the passive investing charges war, Vanguard has cut fees across its range of ETF and index funds. It follows the example of Vanguard’s main rival, BlackRock, who slashed charges on many of its products in August – as both firms compete for market share in the passive investing space.
What cuts have Vanguard made?
Vanguard have thrown down the gauntlet to BlackRock and other passive rivals by cutting its ongoing charges figure (OCF) on 13 ETFs and 22 index funds:
|ETFs||Old OCF||New OCF|
|Vanguard FTSE All-World UCITS ETF||0.25%||0.22%|
|Vanguard FTSE Developed Asia Pacific ex Japan UCITS ETF||0.22%||0.15%|
|Vanguard FTSE Developed Europe ex UK UCITS ETF||0.12%||0.10%|
|Vanguard FTSE Developed Europe UCITS ETF||0.12%||0.10%|
|Vanguard FTSE Developed World UCITS ETF||0.18%||0.12%|
|Vanguard FTSE Emerging Markets UCITS ETF||0.25%||0.22%|
|Vanguard FTSE Japan UCITS ETF||0.19%||0.15%|
|Vanguard EUR Corporate Bond UCITS ETF||0.12%||0.09%|
|Vanguard EUR Eurozone Government Bond UCITS ETF||0.12%||0.07%|
|Vanguard UK Gilt UCITS ETF||0.12%||0.07%|
|Vanguard USD Corporate 1-3 Year Bond UCITS ETF||0.15%||0.09%|
|Vanguard USD Corporate Bond UCITS ETF||0.12%||0.09%|
|Vanguard USD Treasury Bond UCITS ETF||0.12%||0.07%|
Source: Vanguard, AJ Bell
|Index Funds||Old OCF||New OCF|
|Vanguard Emerging Markets Stock Index Fund||0.27%||0.23%|
|Vanguard Global Small-Cap Index Fund||0.38%||0.29%|
|Vanguard Japan Stock Index Fund||0.23%||0.16%|
|Vanguard Pacific ex-Japan Stock Index Fund||0.23%||0.16%|
|Vanguard SRI European Stock Fund||0.30%||0.16%|
|Vanguard SRI Global Stock Fund||0.35%||0.22%|
|Vanguard Euro Government Bond Index Fund||0.25%||0.12%|
|Vanguard Euro Investment Grade Bond Index Fund||0.30%||0.12%|
|Vanguard Global Corporate Bond Index Fund||0.25%||0.18%|
|Vanguard Global Short-Term Corporate Bond Index Fund||0.25%||0.18%|
|Vanguard Japan Government Bond Index Fund||0.25%||0.12%|
|Vanguard UK Government Bond Index Fund||0.15%||0.12%|
|Vanguard UK Investment Grade Bond Index Fund||0.15%||0.12%|
|Vanguard UK Short-Term Investment Grade Bond Index Fund||0.15%||0.12%|
|Vanguard US Government Bond Index Fund||0.25%||0.12%|
|Vanguard US Investment Grade Credit Index Fund||0.30%||0.12%|
|Vanguard FTSE Developed World ex-UK Equity Index Fund||0.15%||0.14%|
|Vanguard FTSE Global All Cap Index Fund||0.24%||0.23%|
|Vanguard FTSE UK All Share Index Unit Trust||0.08%||0.06%|
|Vanguard FTSE UK Equity Income Index Fund||0.22%||0.14%|
|Vanguard UK Inflation-Linked Gilt Index Fund||0.15%||0.12%|
|Vanguard UK Long Duration Gilt Index Fund||0.15%||0.12%|
Source: Vanguard, AJ Bell
Why ETF fee cuts are especially valuable
For investors, any fee cut is good news. All else being equal, lower fees mean higher returns – and fees are one of the few variables within an investor’s control. But lower charges are even more welcome for ETFs compared with normal open-ended funds.
With normal open-ended funds, investors can usually pick from a number of different share classes. But typically, there are restrictions on who can choose what class. Some are open only to individuals, others only to institutions (e.g. financial organisations or charities), others only to investors who put in more than a certain amount. And each of these share classes will have different fee levels.
What tends to happen, when open-ended funds cut their fees, is that the reduction applies to some share classes but not others – so not all investors benefit from the lower charges. Alternatively, a new share class might be issued at a lower fee, but investors won’t automatically be moved over to it.
ETFs, on the other hand, operate differently. Where ETFs have classes, they’re usually for different currency listings, and are open to all investors, whether individual or an institution, and priced at the same rate. So when an ETF cuts prices, every investor feels the benefit, regardless of status or amount invested.
Example of price cuts on Open End Fund and ETF:
Source: AJ Bell
An ETF price war, like the one we’re seeing between Vanguard, BlackRock and others is, therefore, especially good for ETF investors.
One of the things we like about ETFs at AJ Bell, and one of the reasons we are a big user of them in our AJ Bell Fund range, is the democratic nature of the fee structure.
What do Vanguard’s cuts mean for me?
If you hold any of the funds whose fees have been cut, you’ll automatically benefit. Vanguard takes its fees directly from its funds – they’ll now take the new, reduced amount.
Five of the ETFs affected are held in the AJ Bell Fund range, helping to reduce fees overall for AJ Bell funds holders. And two of the above ETFs and one of the index funds affected are on the AJ Bell Favourite funds list:
- Vanguard FTSE Developed Europe ex-UK ETF
- Vanguard FTSE Japan ETF
- Vanguard UK Inflation-Linked Gilt Index Fund
The Investments team at AJ Bell will continue to monitor and review the marketplace to ensure our AJ Bell funds and AJ Bell Favourite funds list contain only products that represent good value, being a combination of; low cost, a proven track record and management by a quality team. If we feel that any of the Vanguard funds whose fees have been cut, now represent better all-round value, than similar holdings on our Favourite funds list, we’ll look to adjust our list accordingly.
These articles are for information purposes only and are not a personal recommendation or advice. The AJ Bell funds and AJ Bell Favourite funds list are not a personal recommendation. The AJ Bell Favourite funds list is provided to help you choose your investments. You may own funds which are not included in the list and this does not mean that we are recommending that you sell the fund. If you are unsure about making your own financial decisions or are looking for advice you should speak to a suitably qualified financial adviser.
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