Vanguard Chops More ETF Fees -- WSJ

Money manager takes aim at funds that invest in international assets

By Asjylyn Loder

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (February 27, 2019).

Vanguard Group is cutting management fees on 10 exchange-traded funds, the latest money manager to trim fees on a host of investment products.

The ETFs, with combined assets of $176 billion, include funds that invest in international stocks and bonds. The biggest is the $63 billion Vanguard FTSE Emerging Markets ETF, which will cost $12 a year for every $10,000 invested. That is down from $14, making it cheaper than a competing ETF from BlackRock Inc.'s iShares Core lineup. In addition, 43 Vanguard mutual funds are also reducing fees.

The price cuts were disclosed in new regulatory filings Tuesday.

"A broader and broader base of investors are using ETFs, and that's pushing more assets into these funds," said Rich Powers, head of ETF product management at Vanguard. As the funds grow, economies of scale allow Vanguard to pass savings along to investors, he said.

Vanguard's move is the latest in an escalating fee war in ETFs, where the cheapest funds typically raise the most money. Filings due within the next week for eight other Vanguard ETFs, with a total of almost $440 billion in assets, could show additional fee cuts.

The price war is going well beyond ETF-management costs and into a host of other investment products. Vanguard has been at the forefront of the trend for decades, continually cutting the costs of investing. The focus on lower fees has made the money-management giant in the Philadelphia suburb of Malvern the second-largest asset manager in the world.

Vanguard's success has forced its competitors to match its ultralow prices, a trend often called "the Vanguard effect."

Last year, Fidelity Investments grabbed headlines by introducing a zero-fee lineup of mutual funds, kindling speculation that a free ETF wouldn't be far behind.

Online lender Social Finance Inc. said Monday it planned to start the first zero-fee ETFs. But there's catch: The fees are only being waived for the first year. After that, they could rise to $19 a year for every $10,000 invested, the filing shows.

The cheapest U.S. stock ETFs now cost $3 to $4 a year for every $10,000 invested.

The price paid for index funds that invest in big U.S. companies barely budged in 2018, but there remains steady competition in segments like bonds and emerging markets, according to a report earlier this month from Morningstar.

The price wars also have expanded into new areas of asset management, like advice and brokerage. Earlier this month, Charles Schwab Corp. and Fidelity Investments doubled the number of ETFs that are exempt from trading commissions on their brokerage platforms.

To be sure, management fees aren't the only factor investors use when choosing a fund. They also have to factor in tax implications, trading costs and fund strategy. Vanguard's emerging markets ETF doesn't include South Korean stocks -- unlike the competing iShares funds -- because the funds follow different index methodologies.

Investors also have shown a willingness to pay a little more for index strategies that try to smooth out market turbulence or pick the best-run companies.

Write to Asjylyn Loder at asjylyn.loder@wsj.com

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February 27, 2019 02:47 ET (07:47 GMT)

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