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Vanguard ETF Expense Ratios Increase Due To Business Development Companies (BDCs)

Feb. 15, 2012 11:35 PM ETIVOV, IVOO, VIOO, VIOV, VONV
Zach Tripp profile picture
Zach Tripp's Blog
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Some interesting news from Vanguard. I guess investing in BDCs is getting more popular...

Expense ratio changes for 27 Vanguard ETFs®
From Vanguard, 20-Jan-2012

In December 2011, Vanguard filed annual prospectus updates for 27 ETFs that had changes in their stated expense ratios. Eight of the ETFs had expense ratios that increased, while the remaining 19 ETFs had a decrease. Ten sector, six bond, and three mega-cap ETFs experienced reductions. Increases occurred in eight of our Russell and S&P domestic equity ETFs.

In the cases where there were expense ratio reductions, they were primarily a result of the way we operate our funds. When funds and their corresponding ETF share class experience greater efficiencies (either through asset growth, operating cost reductions, or a combination of both) the savings are passed on to the fund owners in the form of lower expenses.

For those ETFs where expense ratios increased, it was due to "acquired fund fees and expenses" (AFFE) that result from ownership of business development companies (BDCs).

Although the SEC requires that BDC costs be included in a fund's expense ratio, these fees are not incurred by the fund. They have no impact on a fund's total return or on its tracking error relative to an index. The financial statements in each fund's annual or semiannual report provide an annualized calculation of the fund's actual expenses for the period, a more accurate tally of the operating costs incurred by shareholders. Several Vanguard ETFs own shares of BDCs because the BDCs are included in the ETFs' target indexes.

As always, Vanguard continues to work hard to create value for our clients by offering hiqh-quality investments with low costs. The chart below identifies the ETFs that were affected along with their prior and current expense ratios. All of the ETFs below have fiscal years ending in August. As prospectuses are updated for other funds, there may be additional expense ratio changes.

Vanguard ETF® Ticker
expense ratio
expense ratio
S&P Mid-Cap 400 IVOO 0.16% 0.17%
S&P Mid-Cap 400 Value IVOV 0.21 0.24
S&P Small-Cap 600 VIOO 0.15 0.16
S&P Small-Cap 600 Value VIOV 0.20 0.22
Russell 1000 Value VONV 0.15 0.16
Russell 2000 VTWO 0.19 0.22
Russell 2000 Value VTWV 0.27 0.33
Russell 3000 VTHR 0.15 0.16
Mega Cap 300 MGC 0.13 0.12
Mega Cap 300 Growth MGK 0.13 0.12
Mega Cap 300 Value MGV 0.13 0.12
Short-Term Corporate Bond VCSH 0.15 0.14
Short-Term Government Bond VGSH 0.15 0.14
Intermediate-Term Corporate Bond VCIT 0.15 0.14
Intermediate-Term Government Bond VGIT 0.15 0.14
Long-Term Corporate Bond VCLT 0.15 0.14
Long-Term Government Bond VGLT 0.15 0.14
Consumer Discretionary VCR 0.24 0.19
Consumer Staples VDC 0.24 0.19
Energy VDE 0.24 0.19
Financials VFH 0.27 0.23
Health Care VHT 0.24 0.19
Industrials VIS 0.24 0.19
Information Technology VGT 0.24 0.19
Materials VAW 0.24 0.19
Telecommunication Services VOX 0.24 0.19
Utilities VPU 0.24 0.19

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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