Share “Vanguard switches to lower-cost benchmarks”

Vanguard switches to lower-cost benchmarks

The move is expected eventually to lead to fee reductions for investors in Vanguard funds holding more than half a trillion dollars, or more than a quarter of the $1.95 trillion that the company manages in U.S. mutual funds and exchange-traded funds.
By MARK JEWELL Published: October 3, 2012
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Vanguard Group is trying to bolster its appeal to cost-conscious investors by reducing a key expense of investing in low-cost index mutual funds: fees paid to firms that license benchmarks covering segments of the stock market that the funds track.

The nation's largest fund company said Tuesday that it has negotiated lower-cost index licensing deals that will result in 22 of its index funds switching to new benchmarks, and adjusting the stocks they invest in accordingly.

The move is expected eventually to lead to fee reductions for investors in Vanguard funds holding more than half a trillion dollars, or more than a quarter of the $1.95 trillion that the company manages in U.S. mutual funds and exchange-traded funds.

The new licensing deals “will enable us to deliver significant value to our index fund and ETF shareholders and lower expense ratios over time,” said Gus Sauter, chief investment officer with Vanguard, a privately held company based in Valley Forge, Pa.

Funds may cut ratios

It's premature to discuss when specific funds will cut their expense ratios as a result of the agreements, or how large the cuts will be, Vanguard spokesman John Woerth said.

Index funds seek to match rather than beat the market by investing in a basket of stocks or bonds.

Fees are typically low because investors aren't paying managers to pick investments.

Index fund managers are supposed to ensure that the fund's holdings are essentially the same as the market index that the fund pays licensing fees to track, while making adjustments when particular stocks are removed or added to the index.

Index licensing fees have represented a growing portion of the expenses that investors pay to own index funds and ETFs, Sauter said.