Vanguard offers funds that have some of the lowest expense ratios in the industry. Offering funds at-cost was a novel idea that made Vanguard the world’s largest mutual fund company, with about $1.6 trillion in assets.
It took a while for competition to take notice, but now there are fund companies that offer funds that are priced lower than their Vanguard peers.
Here’s a list of the ten, commonly used ETFs that have an expense ratio lower than that of Vanguard’s. (ETF commissions have not been considered in the preparation of this list.)
Large Cap – Value
Schwab’s U S Large Cap Value ETF (SCHV), tracks the Dow Jones’ U.S. Large-Cap Value Total Stock Market Index and has an expense ratio of 0.13 which is less than that of its Vanguard peer, VTV, which has an expense ratio of 0.15. Schwab started offering this ETF towards the end of 2009. Vanguard’s assets are over 19 times that of Schwab’s!
Large Cap – Blend
In the large cap blend category, we have Morningstar’s aggressively priced FLG with an expense ratio of just 0.05% as opposed to Vanguard’s VV, with an expense ratio of 0.13%. FLG is entirely composed of US and Europe sectors whereas VV has a small exposure to Canada. Both have zero exposure to Asia.
Large Cap – Growth
Technology, Industrials and Health Care form the top 3 sectors for SCHG; VUG’s top three sectors are Technology, Industrials and Consumer Discretionary.
Mid Cap – Blend
Morningstar introduced its Focus Morningstar Mid Cap Blend ETF, FMM, at the end of March last year. It has $4.6M assets under management and an expense ratio of 0.12. Vanguard’s VO has $3.2B (that’s a B!) assets under management and and expense ratio of 0.15.
Small Cap – Blend
In this category, we have both Schwab and Morningstar offering ETFs priced lower than that of Vanguard’s VB (0.17% ER). Schwab with SCHA has an expense ratio of 0.13% and Morningstar’s FOS has an ER of 0.12%.
Total Bond Market
Both Vanguard’s BND and Schwab’s SCHZ both track the same index – Barclays Capital U.S. Aggregate Bond Index. The difference is in their sizes. Vanguard has $13.8B assets under management and Schwab has $174.6M. BND’s ER is 0.11%. Schwab’s SCHZ is cheaper by 0.01% at 0.09%!
Short-Term Government Bond
PIMCO’s TUZ vs. Vanguard’s VGSH. Both hold short term government bonds maturing in 1 to 3 years. VGSH tracks the Barclays Capital U.S. 1-3 Year Government Bond Index whereas TUZ tracks BofA Merrill Lynch 1-3 Year US Treasury Index. The comparison between these two funds are well matched as PIMCO is one of the world’s largest fund companies and home to the largest bond fund, PIMCO Total Return Fund.
TUZ has $143.0 M assets under management and VGSH has $170.6 M. TUZ is priced lower with and ER of0.09% versus Vanguard’s VGSH at 0.14%.
Intermediate-Term Government Bond
Intermediate bonds have a duration of 3 to 10 years. Vanguard’s VGIT tracks the Barclays Capital U.S. 3-10 Year Government Index and has an expense ratio of 0.14%. Scwhab’s SCHR which tracks the same index is cheaper at 0.12% ER. But this is one ETF from Schwab that’s managed to overtake Vanguard’s VGIT in terms of total assets, even though SCHR is newer than VGIT. Schwab has $122.39M and Vanguard has just $81.68M.
Short-Term Corporate Bond
Vanguard’s VCSH tracks Barclays Capital U.S. 1-3 Year Corporate Bond Index while State Street’s SCPB tracks Barclays Capital U.S. 1-5 Year Corporate Index. Slightly different, but close enough. Both hold investment grade corporate bonds. State Street’s is slightly cheaper with an ER of 0.12% and Vanguard’s VCSH has an expense ratio of 0.15%. Though both are relatively new ETFs with an inception date that’s just about a month apart, VCSH has a market cap of $2B whereas SCPB has tops off at $393M.
And finally, Focus Morningstar’s Financial Services ETF FFL, manages to beat its Vanguard counterpart VFH with an expense ratio of 0.19% against 0.23% for VFH. Vanguard’s VFH is more diversified with a composition of 513 stocks against just 199 stocks making up FFL.
One more investment company will be joining the ETF market with its own ETFs – Fidelity. Recently, Fidelity filed with the SEC to go beyond the lone ETF it offers now – Fidelity Nasdaq Composite Index (ONEQ). Though Fidelity has been offering select iShares ETFs commission-free, these ETFs are not as aggressively priced as Vanguard’s.
With competition heating up, investors now have more low cost choices than ever before.
In the long run it’s something everybody will be doing because it reduces costs.
-John Bogle, on indexing
Disclosure: No positions in the funds mentioned above.