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Vanguard slashes ETF and mutual fund fees

Cost_cuttingUS fund manager Vanguard has slashed fees across its exchange-traded fund (ETF) and mutual fund ranges, raising the stakes in the ongoing price war between ETF providers.

The firm has lowered charges across 36 funds available to UK retail investors. Average ongoing charges across Vanguard’s UK fund range now stand at 0.2%.

Overall, thirteen ETFs, 22 index funds and the Vanguard Sterling Short-Term Money Market Fund have had their fees reduced.

The firm’s index mutual fund line-up in the country now carries an average ongoing charges (OCF) figure of 0.15%, whilst the ETF index range has an average of just 0.10%. In June this year, Vanguard – which manages £4.7 trillion (€5.45 trillion) of assets – also cut the fees on its UK-domiciled actively-managed range.

Sean Hagerty, head of Vanguard for Europe, said more work needs to be done to ensure investors understand the impact of costs on investment returns.

“There is still a misconception that the more you pay for an investment, the better it performs. In reality, costs really impact the returns investors make - every pound paid in fees is a pound off investors’ returns. Investors cannot control the markets, but they can control the fees they pay,” he said.

Following the cuts, the majority of its ETF charges stand at 0.10% or under, whilst the bulk of its index funds have an OCF of 0.12%.

The cheapest of the funds is now the FTSE U.K. All Share Index Unit Trust, with an OCF of 0.06%.

“Vanguard’s move today is the latest episode in the fee war that has been taking place in the passive funds space.  However, Vanguard is far from being at the forefront when it comes to fee cuts in Europe,” said Morningstar’s associate director of passive strategies, Jose Garcia Zarate.

He highlighted that several passive fund managers have cut fees earlier this year and in 2018.

“In many cases, these fee cuts are a direct response to cuts implemented by competing asset managers.  This has been particularly evident in the ETF market, where new entrants to the market have aggressively priced their propositions to challenge incumbents,” he said.

“Moreover, fee cuts are no longer exclusive to equity exposures - fee compression in the fixed-income space is now also gathering pace.  In the case of Vanguard, the fact is that some of their index funds were looking relatively toppy cost-wise in comparison with several of their competitors.”

In the US, firms have begun offering ETFs for free, and even entered the realm of “negative” fees. Funds Europe recently asked industry experts whether the same could happen in Europe. Read the report here.

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