It’s been a long time coming, but an S&P 50 ETF from Vanguard is finally here. The Valley Forge, Pennsylvania-based firm rolled out the Vanguard S&P 500 ETF (NYSEARCA:VOO) on Thursday, nearly 35 years after the company introduced an S&P 500 index mutual fund that laid the groundwork for the rise of indexing as an investment strategy. Earlier this decade Vanguard got caught up in a legal dispute with S&P over the licensing of the index, leading the company to build its line of ETFs around indexes maintained by MSCI–a relative unknown in the industry at the time.
It shouldn’t be surprising to too many investors that Vanguard’s S&P 500 ETF will come in with a lower expense ratio than it’s most direct competitors; VOO will charge 0.06%, or three basis points less than the S&P 500 SPDR (NYSEARCA:SPY) and S&P 500 Index Fund (NYSEARCA:IVV). The existing S&P 500 ETFs from State Street and iShares have aggregate assets of approximately $80 billion. VOO will join Schwab’s U.S. Broad Stock Market ETF (NYSEARCA:SCHB) as the cheapest ETF on the market. Vanguard and Schwab have been the two firms primarily responsible for an escalation of price wars in the ETF industry over the last year; both have cut management fees on existing funds and introduced new products that offer lower expense ratios than their most direct competitors.
In addition to VOO, Vanguard rolled out eight additional funds offering exposure to the S&P MidCap 400 Index and S&P SmallCap 600 Index, as well as the value and growth subsets of those benchmarks:
- S&P Mid-Cap 400 ETF (NYSEARCA:IVOO)
- S&P Mid-Cap 400 Value ETF (NYSEARCA:IVOV)
- S&P Mid-Cap 400 Growth ETF (NYSEARCA:IVOG)
- S&P Small-Cap 600 ETF (NYSEARCA:VIOO)
- S&P Small-Cap 600 Value ETF (NYSEARCA:VIOV)
- S&P Small-Cap 600 Growth ETF (NYSEARCA:VIOG)
- S&P 500 Value ETF (NYSEARCA:VOOV)
- S&P 500 Growth ETF (NYSEARCA:VOOG)
Each of these products will also compete very closely with existing ETFs, primarily products offered by iShares. Expense ratios on the new Vanguard funds range from 15 to 20 basis points, making them competitive from a cost perspective. “The new Vanguard index funds and ETFs offer our trademark low costs and tax efficiency, and aim for the utmost tracking precision. They will appeal to financial advisors and institutional investors seeking to build portfolios based on S&P benchmarks,” said Vanguard Chairman and CEO Bill McNabb in a press release. “In particular, the new ETFs will offer additional choices to investors and help Vanguard continue to build momentum in the ETF marketplace.”
Vanguard’s presence in the ETF industry has gradually gained momentum this year; the firm’s $23.7 billion in cash inflows through the first eight months of 2010 account for more than half of the industry total. The firm also recently topped iShares for the first time in a survey of advisor loyalty, perhaps indicating that the appeal of the low-cost products is increasing among financial professionals.
Disclosure: Long IVV.
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