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

Some interesting news from Vanguard. I guess investing in BDCs is getting more popular...
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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 symbol	Old expense ratio	New 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.