Vanguard Gets Gold Medal for ETF Growth

Investors poured $96bn in new money into Vanguard funds and exchange-traded funds in 2007, making it the biggest-selling fund company in the US and ending American Funds' six-year run at the top according to an article by Deborah Brewster of the Financial Times. Vanguard's inflows took its assets under management to for all funds including ETFs to $1,300bn.

Vanguard benefited from strong inflows into money market funds and a decisive jump in ETF assets. In 2007, Vanguard launched ten new ETFs, undercutting its rivals' prices, and sharply cut fees on its existing ETFs. This lead to a gain of $18bn in sales and lifting its ETF assets under management to $41bn. Barclays iShares family of ETFs is still the global leader in ETFs by a wide margin with more that 60% of global ETF assets under management.

American,Vanguard and Barclays have different distribution strategies. Vanguard mostly sells directly to investors. American Funds, which is actively managed, sells only through brokers and financial advisers. Barclay's iShares are primarily marketed to advisors but estimates are that a majority of iShare ETFs are purchased by individual investors.

Vanguard's ETFs are presented in a more simple manner while the iShares amazingly broad menu appeals to investors looking at executing perhaps more sophisticated and active strategies. Vanguard attributed its gains to its low fees, which are less than half the industry average.

In 2007, it launched a Europe-Pacific ETF with annual fee of 0.15 per cent, less than half the level of the equivalent offering from Barclays Global Investors. A few months ago, Vanguard launched a clutch of bond ETFs with fees of 0.11 per cent, a level similar to fees previously offered only to institutional clients.

Comments

[goatfarmer]

With luck, Vanguard's success will start an expense cutting trend among ETF providers. Why should I buy EFA when I can buy Vanguard's equivalent for half the expense ratio? I guess it's just a matter of time before investors start doing the compounding sums and work out what percentage the expense ratio becomes of, say, 100% profit over ten years. 0.7% works out at something like 10%.

[Geoffrey Lordi]

Noteworthy article.

Although there are myriad examples of "reduced rate one-upsmanship" (great for us!), another Vanguard vs. iShares example is VWO vs. EEM. The former, for the period in which we've invested-about 1.6 years, not only outperformed the latter-by around 4%, but charged significantly less for doing so (0.30% vs. 0.74%, according to Yahoo! Finance)...We'll take it!