The gas pump isn't the only place where prices are dropping: Vanguard has fired another volley in the price war between fund mangers, to the benefit of retirement investors.
The Malvern, Pa.-based discount brokerage and fund powerhouse lowered expense ratios for 35 mutual funds and ETFs on Thursday, including those for the target-date funds that often form the core of 401(k) and IRA portfolios.
“We strongly believe in setting our investors up for success, and one of the best ways to do that is to keep the cost of investing low, enabling them to keep more of what they earn,” said Vanguard CEO Bill McNabb in a released statement. “The compounding effect of high costs is especially corrosive to the returns of retirement investors—those saving over 30 to 40 years in a 401(k) plan or through an IRA.”
The reduction comes on the heels of fee cuts in 2015, when the firm lowered expense ratios for a total of 102 mutual funds and ETF share classes. The firm also lowered expense ratios for 90 fund share classes in 2014.
The expense ratios of Vanguard target-date funds, commonly used as a default investment in retirement portfolios, dropped two basis points and now range from 14 basis points to 16 basis points. With $358 billion of target-date assets, including $37 billion of mutual fund flows in 2015, Vanguard has become the industry’s largest manager of these types of funds.
Vanguard also lowered the expense ratios of the Vanguard Short-Term Inflation Protected Securities Index Fund across share classes, with investor-class shares carrying an expense ratio of 0.17 percent, down three basis points, and ETF shares reporting ratios of 0.08 percent, down two basis points.
While Vanguard attributed the lower expense ratios to fund growth through market appreciation and cash inflows, the announcement comes amidst a price war that has seen BlackRock lower expense ratios on its iShares suite of ETFs, with Charles Schwab following suit. Both companies offer ETFs with expense ratios as low as three basis points.
Not all of Vanguard’s expense ratios declined—admiral shares of two funds, the Vanguard Morgan Growth Fund and the Vanguard Capital Value Fund, reported increases of one basis point and three basis points respectively due to incentive fees paid to the funds’ advisors.
The firm also lowered expense ratios for some of it’s actively managed offerings:
- Two share classes of the balanced Vanguard Wellesley Income Fund had expense ratios lowered by two basis points.
- Eight share classes of fundamentally managed active equity funds, including the Vanguard PRIMECAP Fund, reported expense reductions. Admiral shares of the PRIMECAP fund were reduced by one basis point to 0.34 percent, while investor shares were lowered by four basis points to 0.4 percent.
- Nine share classes of quantitatively managed active equity funds reported lower expense rations, with investors in the Vanguard Strategic Equity Fund enjoying the largest reduction, six basis points, to bring its expense ratio to 0.21 percent.