$VOO Expense Ratio Lowered from 0.04% to 0.03%
Congrats to all you Bogleheads — the most boring investment just got a little cheaper.
Vanguard Group will not be outdone. A fintech start-up offered zero-fee ETFs first, but that’s quickly becoming old news.
The latest annual reports by Vanguard, the $5 trillion money manager, show that its Vanguard S&P 500 exchange-traded fund (VOO) now costs a mere 0.03%, or about $3 per $10,000 invested annually. That’s cheaper than the most popular and biggest ETF on the market, the SPDR S&P 500 (SPY). It also undercuts BlackRock’s iShares Core S&P 500 ETF (IVV), which charges 0.04%.
“Vanguard has reset the bar in the price competition for asset allocation products,” says Todd Rosenbluth of CFRA. “While we’ll soon have zero-fee ETFs from SoFi, these Vanguard products are extremely popular and investors are only more likely to gravitate toward them as they focus more on fees.”
Earlier in the week, Vanguard unveiled lower fees on 10 ETFs that undercut its own Admiral mutual fund shares for the first time ever. It seemed like there was little left to cut based on annual reports released on Tuesday. But the latest reveal on Friday suggests fees could fall further. Now that the Vanguard Total Bond Market ETF (BND) boasts an expense ratio of 0.035%, lower than theiShares Barclays Aggregate Bond ETF’s (AGG) 0.06% and the SPDR Portfolio Aggregate Bond ETF’s (SPAB) 0.04%, rivals could in turn make surgical cuts to their fees.
Vanguard’s ETFs could become a bigger part of its overall business. As the low-cost revolution pushed investors to fixate on costs, the firm’s clients have increasingly picked up ETFs. And as the assets in Vanguard’s products grow, the firm’s business model allows it to pass on savings to its customers. ETF assets account for some 20% of Vanguard’s near $5 trillion in assets, but they accounted for more than 35% of its net cash flow in the last three years. And as Vanguard’s ETF assets get bigger, fees could fall even more.
or now, the Vanguard S&P 500 ETF’s $100 billion in assets pale in comparison to the SPDR S&P 500 ETF’s $260 billion in assets. The SPDR S&P 500, lovingly called the “SPY,” is the institutional investors’ and traders’ vehicle of choice due to its liquidity. But a future in which Vanguard’s S&P 500 ETF eclipses the SPDR S&P 500 ETF is in sight.
“The Vanguard S&P 500 has been an asset gatherer and continues to pull in money during times of market stress and tax loss harvesting, out-gathering the iShares S&P 500,” Rosenbluth says. “I’m a strong believer that you shouldn’t focus on costs, but when the products track the same exact index, it’s hard to make a case for a more expensive product.”
Rival money managers could be quaking in their boots, but investors have every reason to cheer.
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