VALLEY FORGE, PA (March 28, 2017)— In the fourth of six planned announcements, Vanguard reported lower expense ratios today for 15 mutual fund shares, including the industry’s largest balanced fund. As a result, investors saved an estimated $23 million based on total assets across the funds in this round of expense ratio changes.1 To date, Vanguard has reported an estimated $165 million in cumulative savings based on total assets across 139 index and actively managed fund and ETF shares.2
“We’re pleased to continue lowering the cost of investing for our clients, as low costs are absolutely critical to long-term investment success,” said Vanguard CEO Bill McNabb. “Low fees are the starting point – the first filter in selecting investments. However, we remind investors there are other considerations in selecting a fund and an investment provider as well as other factors that strongly influence outcomes.”
Investor outcomes are particularly sensitive to savings rates, especially over the long term. For example, increasing one’s savings rate by 1% has a far more profound impact than paying 1 basis point less in fees. Over 30 years, a 1% higher savings rate results in $65,000 in additional assets, compared to the $700 savings stemming from a 1 basis point difference in expense ratios (assuming an investor has a starting salary of $100,000, an investment growth rate of 5%, and a salary increase of 1% annually).3
Active Tax-Exempt Funds Lead Reductions
Unlike competitors, Vanguard announces expense ratios changes on a scheduled basis across asset classes (stock, bond, balanced, and money market funds), across product types (traditional funds and ETFs), and across investment strategies (active and index).
Seven actively managed state municipal bond funds are reporting lower expenses for an estimated cumulative savings of more than $7 million1:
Active Balanced Funds Announce Reductions
Three actively-managed fund shares also reported expense ratio decreases this month. The $98 billion Vanguard Wellington Fund Investor (VWELX) and Admiral (VWENX) shares declined one and two basis points to 0.25% and 0.16%, respectively. The expense ratio of the $1.5 billion Vanguard Convertible Securities Fund (VCVSX) declined four basis points to 0.34%.
Founded in 1929, Vanguard Wellington Fund is the nation’s oldest and largest balanced fund. The fund’s expense reductions can be attributed to economies of scale from asset growth and incentive/penalty arrangements.
Vanguard aligns the interests of its external investment advisory firms with those of shareholders by using incentive/penalty arrangements. Under the majority of Vanguard fund advisory agreements, an external advisor’s base advisory fee can be adjusted up or down to reflect the fund’s investment performance relative to the total return of an appropriate market benchmark over a 36- or 60-month period. In effect, the advisor is rewarded for outperforming a market benchmark and penalized for underperforming it. Vanguard is one of the few firms in the industry to employ performance incentive/penalty arrangements.
Two Additional Reporting Periods to Come
In accordance with Securities and Exchange Commission requirements, expense ratios are reported in fund prospectuses and are filed within 120 days of the fund’s fiscal year end. Expense ratios represent the actual operating expenses (including investment advisory fees, administrative costs, and shareholder-service expenses) for the prior fiscal year, meaning investors have already realized these savings by the time they are reported.
To date, Vanguard has reported expense ratio changes for fund with fiscal years ending in August, September, October, and November. Vanguard will announce changes for funds with fiscal years ending in December and January in the coming months.
Vanguard is one of the world’s largest investment management companies. As of February 28, 2017, Vanguard managed more than $4.2 trillion in global assets. The firm, headquartered in Valley Forge, Pennsylvania, offers more than 350 funds to its more than 20 million investors worldwide. For more information, visit vanguard.com.
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1Estimated savings for the identified funds is the difference between prior and current expense ratios multiplied by average AUM. Average AUM is based on daily average assets during a month, which are then averaged over the 12-months of the fiscal year ending November 31, 2016.
2 Cumulative figure for all share classes from December 2016 through March 2017 for the identified funds. Estimated savings is the difference between prior and current expense ratios multiplied by average AUM. Average AUM is based on daily average assets during a month, which are then averaged over the 12-months of the fiscal year.
3This hypothetical example does not represent any particular investment and the rate is not guaranteed. The final account balance does not reflect any taxes or penalties that may be due upon distribution. Withdrawals from a tax-deferred plan before age 59½ are subject to a 10% federal penalty tax unless an exception applies.
Assets figures as of February 28, 2017 unless otherwise noted.
Vanguard provides its services to the Vanguard funds at cost. More information about Vanguard funds, including at-cost services, is available in a fund’s prospectus.
For more information about Vanguard funds and ETFs, visit vanguard.com or call 800-662-7447 to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing.
Past performance is no guarantee of future results.
All investments are subject to risk, including the possible loss of the money you invest.
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