Thanks to the growing competition in the ETF business in recent years, there has been a race to the bottom with regard to costs in order to gain market share. While many issuers have joined this bandwagon, the low cost corner of the market is dominated by Charles Schwab and Vanguard.
Initially, Vanguard was the ruler of low cost products. But, lately Schwab seems to have surpassed Vanguard by cutting its fees to rock bottom levels. Probably, in a bid to regain its lost ground, Vanguard also resorted to a price cut strategy lately.
Recently, this mega ETF issuer announced that expense ratios have fallen for five of its international stock ETFs, including FTSE Emerging Markets (NYSEARCA:VWO) – the most popular emerging market ETF. This is not the first time that Vanguard slashed its already low expense ratio to a new level. In December 2012, the issuer reduced fees on almost two dozen ETFs (read: Vanguard Ends 2012 with a Bang, Cuts Fees on 22 ETFs).
The following are the ETFs that saw a cut in fees:
|ETF||Symbol||AUM||Old Expense Ratio||New Expense Ratio||How Cheaper?|
|FTSE All-World ex-US Small-Cap||(VSS)
||$1.81 billion||0.25%||0.20%||87% lower than the average fees charged by peers with similar holdings.|
|FTSE Emerging Markets||(VWO)
||$41.1 billion||0.18%||0.15%||91% lower than the average fees charged by peers with similar holdings.|
|Global ex-U.S. Real Estate||(VNQI)
||$1.26 billion||0.32%||0.27%||80% lower than the average fees charged by peers with similar holdings.|
|Total International Stock||(VXUS)
||$2.54 billion||0.16%||0.14%||89% lower than the average fees charged by peers with similar holdings.|
|Total World Stock||(VT)
||$3.29 billion||0.19%||0.18%||87% lower than the average fees charged by peers with similar holdings.|
VWO’s Fee Cut in Detail
Among the set of five funds, the most-talked about is VWO. It is the largest emerging market ETF followed by iShares MSCI Emerging Markets Index Fund (NYSEARCA:EEM) that charges 67 bps in fees. Such a huge expense ratio differential is deemed to be the reason behind iShares EEM’s failure to keep the top spot in the space.
So far, VWO used to face tough competition, on the expense front, from Core MSCI Emerging Markets ETF (NYSEARCA:IEMG) charging 18 bps in fees and most importantly arch rival Schwab’s Emerging Markets Equity ETF (NYSEARCA:SCHE) charging 15 bps annually. But with the latest cut to 15 bps, Vanguard left iShares’ IEMG behind and matched Schwab’s SCHE.
VSS’s Fee Cut in Detail
With a 5 bps cut in fees to 20 bps annually, VSS also matches the lowest expense ratio along with Charles Schwab’s International Small-Cap Equity ETF (NYSEARCA:SCHC) in the foreign small & mid cap equities ETF space. In terms of AUM, VSS ranks second in the space following iShares MSCI EAFE Small Cap Index Fund (SCZ) which charges 40 bps. This latest cut might help VSS compete for some more investors’ assets.