US fund manager Vanguard has upped the ante in the increasingly competitive world of passive investing.
What has Vanguard done?
Vanguard which has more than $8.0 trillion (£5.88 trillion) of assets under management has pledged to cut the fees paid by inventors in its funds, by $1.0 billion over 2022.
The Malvern Pennsylvania based firm trimmed fees by $140.0 (£102.0) million in 2021.
Vanguard effectively pioneered the low-cost investment space since it was founded in 1975, over which time its acquired 30 million clients and the business is continuing to expand, with investors committing almost $300.00 billion of new money to the manager in 2021, a rise of more than 60% compared to 2020s inflows.
What are Vanguard’s competitors doing?
Vanguard’s principal competitor BlackRock, which saw its asset under management surpass $10.00 trillion (£7.35 trillion) this week, has also been trimming fees and most recently it cut costs on two of its fixed-income funds.
Retail interest in buying ETFs, which track an equity benchmark, a sector, investment style or instrument, continues to grow in an environment where active managers are struggling to beat the return of indices such as the S&P 500, whilst charging far higher fees than funds that simply try to track and match the performance of an index or other instruments.
In 2021 just 25%, or 1 in 4 of active US equity fund managers managed to beat the returns of the S&P 500 index.
Vanguard CEO Tim Buckley told the FT that ETF demand was booming among US financial advisors and retail investors adding that ETFs now offer more choices, more flexibility at a lower cost than mutual funds as well.
Perhaps surprisingly Vanguard’s customers are not using ETFs to actively trade the market, and buy and hold strategies seem to be the order of the day with only 25% of the firm’s client base trading in any given year, according to Mr Buckley.
What does this mean for investors?
At the Good Money Guide, we like to see competition drive down prices and increase customer choice, and lower fees should mean that investors keep a bigger slice of investment returns for themselves, and can benefit further from the effects of compounding over the longer term.
However, as we have said before there are few winners if any from a race to bottom where prices and fees are concerned, and a blanket grab for market share can often ultimately reduce choice and competition, the large ETF providers need to make sure that they don’t fall into that trap.
Where to buy Vanguard funds?
You can buy Vanguard funds direct from Vanguard, or through fund investment platforms like: