“How Expense Ratios and Star Ratings Predict Success”
The new offerings feature ETF and Institutional Shares, and provide exposure to the value, growth, and blend segments of the large-cap Russell 1000 Index and small-cap Russell 2000 Index. A broad market fund and ETF seeking to track the Russell 3000 Index are also being offered.
|ETF Shares||Institutional Shares|
|Benchmark||Ticker||Expense Ratio||Ticker||Expense Ratio|
|Russell 1000 Index||VONE||0.12%||VRNIX||0.08%|
|Russell 1000 Value Index||VONV||0.15%||VRVIX||0.08%|
|Russell 1000 Growth Index||VONG||0.15%||VRGWX||0.08%|
|Russell 2000 Index||VTWO||0.15%||VRTIX||0.08%|
|Russell 2000 Value Index||VTWV||0.20%||VRTVX||0.08%|
|Russell 2000 Growth Index||VTWG||0.20%||VRTGX||0.08%|
|Russell 3000 Index||VTHR||0.15%||VRTTX||0.08%|
“Russell benchmarks are well-constructed and well-recognized, and meet Vanguard’s ‘best practice’ standards for index construction. Institutional investors, consultants, financial advisors, and others with a preference for Russell indexes now have low-cost Vanguard options to consider,” said Vanguard Chairman and CEO Bill McNabb.
Russell is a leading provider of U.S. equity indexes for institutional investors, with more than $3.9 trillion in assets benchmarked against its indexes (source: Russell Investments, as of December 31, 2009). Vanguard also offers complete suites of index funds and ETFs based on broad domestic benchmarks from MSCI and S&P.
Vanguard ETFs: A Cost Advantage*
The new Vanguard Russell ETFs will have an average expense ratio of 0.16%, considerably lower than the 0.23% average expense ratio of competing ETFs (source: Morningstar, Inc., as of December 31, 2009).
Costs play an important role in the decision to purchase a mutual fund or ETF, with investors increasingly gravitating toward low-cost options. In fact, a recent Vanguard study** found that investors directed between 55% and 93% of cumulative net cash flow into the lowest-expense quartile of five categories of funds during the 10-year period ended December 31, 2009. Nearly 60% of equity ETF cash flow was invested in the lowest-cost quartile of ETFs. A Morningstar study*** recently concluded that fund costs, not ratings, are a better predictor of performance, and should be a “primary test in fund selection.”
Earlier this month, Vanguard launched nine ETFs based on S&P benchmarks, including ETF Shares of the first mutual index fund for individual investors, the $92 billion Vanguard 500 Index Fund. Vanguard S&P 500 ETF (ticker: VOO) features an expense ratio of 0.06%, which is the lowest expense ratio for an ETF based on the S&P 500 Index (source: Morningstar, Inc.).
In the coming months, Vanguard plans to introduce its first municipal bond index funds. Vanguard will offer three funds, with traditional and exchange-traded shares, tracking benchmarks in the S&P National AMT-Free Municipal Bond Index series. Vanguard’s new municipal ETFs will feature estimated expense ratios of 0.12%.
Vanguard has also filed for a new real estate fund, which will be benchmarked to the S&P Global ex-U.S. Property Index. Vanguard Global ex-U.S. Real Estate Index Fund will offer Investor Shares, Institutional Shares, Signal Shares, and ETF Shares.
After the introduction of these products, Vanguard will offer a total of 66 ETFs.
*The average expense ratio for Vanguard’s ETFs is 0.18% versus the industry average of 0.52% (source: Lipper Inc., as of December 31, 2009).
**Vanguard, “Costs matter: Are fund investors voting with their feet?” May 2010.
***Morningstar FundInvestor, “How Expense Ratios and Star Ratings Predict Success,” August 2010.
Vanguard: An Indexing Leader
Since pioneering the first index mutual fund for individual investors more than three decades ago, Vanguard has become a leading provider of index vehicles, offering stock, balanced, and bond index funds, as well as commingled index trusts. In aggregate, Vanguard manages $713 billion in indexed assets.
Following three consecutive years of industry-leading cash flow, Vanguard this year has garnered more than $71 billion of net new cash flow into long-term funds through August 2010 (source: Strategic Insight Simfund MF and Vanguard). The majority of that cash is flowing into indexed products, whether traditional bond or equity index funds, Vanguard’s 55 existing ETFs, or index-based products like Vanguard Target Retirement Funds.
Vanguard continues to gain momentum in the ETF market, with $113 billion in assets and $23 billion in net cash flow year-to-date through August 2010. Vanguard is the only company that offers funds with both traditional and exchange-traded shares tracking a broad range of benchmarks.
Vanguard, headquartered in Valley Forge, Pennsylvania, is one of the world’s largest investment management companies and a leading provider of company-sponsored retirement plan services. Vanguard manages nearly $1.4 trillion in U.S. mutual fund assets. Vanguard offers more than 160 funds to U.S. investors and more than 50 additional funds in non-U.S. markets
There are other material differences between funds that must be considered prior to investing.
All mutual funds and ETFs are subject to market risk, which may result in the loss of principal. Prices of mid- and small-cap stocks often fluctuate more than those of large-company stocks. Foreign investing involves additional risks, including currency fluctuations and political uncertainty. Funds that concentrate on a relatively narrow market sector face the risk of higher share-price volatility. Investments in bond funds are subject to interest rate, credit, and inflation risk. Although the income from a municipal bond fund is exempt from federal tax, you may owe taxes on any capital gains realized through the fund’s trading or through your own redemption of shares. For some investors, a portion of the fund’s income may be subject to state and local taxes, as well as to the federal Alternative Minimum Tax.
Vanguard ETFs are not redeemable with an Applicant Fund other than in Creation Unit aggregations. Instead, investors must buy or sell Vanguard ETF Shares in the secondary market with the assistance of a stockbroker. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.
Registration statements relating to the Vanguard S&P Municipal Bond ETFs and S&P Global ex-U.S. Real Estate Index Fund and ETF have been filed with the Securities and Exchange Commission but have not yet become effective. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This communication shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of, these securities in any state in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such state.
Copies of the final Vanguard S&P Municipal Bond ETFs and S&P Global ex-U.S. Real Estate Index Fund and ETF prospectuses, when available, as well as prospectuses for all other Vanguard funds, can be obtained by visiting www.vanguard.com, or by calling 800-662-7447. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing. Please note that a preliminary prospectus is subject to change.
Standard & Poor’s®, S&P®, and S&P 500® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and have been licensed for use by The Vanguard Group, Inc. The Vanguard mutual funds are not sponsored, endorsed, sold, or promoted by S&P or its Affiliates, and S&P and its Affiliates make no representation, warranty, or condition regarding the advisability of buying, selling, or holding units/shares in the funds.
The Russell 1000 Index, Russell 2000 Index, Russell 3000 Index and Russell® are registered trademarks of Russell Investments and have been licensed for use by The Vanguard Group, Inc. The Products are not sponsored, endorsed, sold, or promoted by Russell Investments, and Russell Investments makes no representation regarding the advisability of investing in the Products.