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tony

Vanguard CUTS Fees on 56 funds

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No problem on the repost, Tony!  One thing that seems increasingly clear about Vanguard: they want their clients to move away from traditional funds and toward ETFs.  Now they've built in a web tool to identify opportunities to transfer eligible funds to ETFs.  It looks as if their ETF fees are going to continue to be a bit lower than those of many of the equivalent traditional funds.  (I guess it is less costly for Vanguard to manage ETFs, though it is slightly more trouble for investors to rebalance or make regular investments in them.)

Best wishes to all here for a healthy and prosperous year ahead.

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I think you are right Whyme about ETF's.  I was surprise though that a few managed Vanguard funds are still expensive by my standards but still lower than similar funds offered elsewhere by comparison. I guess managed funds is where Vanguard makes their money . Best to stick to their index funds and maybe their target funds for the most part to get the best value. Although they do have a few managed funds that do very well.

Happy new year to all. And thanks to those who keep this site going by sticking their neck out a bit and offering opinions and commentary and often expert opinion and advice.

 

Tony

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19 hours ago, whyme said:

It looks as if their ETF fees are going to continue to be a bit lower than those of many of the equivalent traditional funds. 

This mildly irritates me. I'm not currently willing to switch to ETFs, but doing so would save me 2 basis points on international and 1 basis point on domestic.

In reality, I'm growing increasingly likely to switch over to Fidelity's ZERO funds (FZROX and FZILX) in order to save 11 basis points on international and 4 basis points on domestic. At the very least, I think I'll make this switch in my tax advantaged accounts because it'll easily let me switch back without tax consequences if the funds are ever eliminated or modified in a way I don't want.

14 hours ago, tony said:

I guess managed funds is where Vanguard makes their money

I believe the late, great Bogle disapproved of Vanguard's move into actively managed funds, ETFs, and sector funds. I certainly am.

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10 hours ago, EdLaFave said:

I believe the late, great Bogle disapproved of Vanguard's move into actively managed funds, ETFs, and sector funds. I certainly am.

I don't think Vanguard could pay salaries and expenses without charging something beyond their index funds. That's the reality of the situation. Just ask Fidelity which has motives beyond that including something called Profit. I'm o'k with them selling active funds otherwise they might not exist. If they(Vanguard) didn't exist, I don't think Fidelity would ever have offered their Zero Expense Index Fund. Vanguard by their very existence is bringing expense ratios down for everybody regardless of the investment company choice. The exception might be insurance investment products.

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I believe Vanguard has committed to the principle that each fund must generate the necessary income to sustain itself. In other words, you can’t have a “loss leader” that is subsidized from another income source. I’ve heard this argued as the reason Vanguard will never be able to compete with Fidelity’s ZERO expense funds.

...all of that is to say, the expensive Vanguard funds aren’t necessary to have the cheaper Vanguard funds. Plus I don’t think they had all that stuff when Bogle was running the show, which proved it isn’t necessary. 

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14 minutes ago, EdLaFave said:

... I don’t think they had all that stuff when Bogle was running the show...

I'm not sure what you are including in "all that stuff," but if you mean actively managed funds, Vanguard always had those.  Bogle took pride in their low costs (to date, Vanguard active funds are low cost compared to practically any other active funds on the market) and sober management techniques, including minimizing turnover and otherwise focusing on long-term results.  

There are other money-making add-ons post-Bogle, though, including a large fleet of paid portfolio advisors and a much larger overall number of funds.

I believe that you are correct, Ed, about Vanguard's structure and philosophy re: each fund being self sustaining, so they are unlikely to offer loss leaders.  (As we've discussed before, Fidelity is structured like a trap, they make it difficult to avoid high cost products and services once you are through the door.)  

I guess it's a matter of opinion whether funds charging a few basis points per year compete effectively with the ZERO funds.  It remains to be seen whether the Fidelity funds actually do as well as the Vanguard equivalents: I think they use different indexes, and I'm guessing some behind-the-scenes stuff (such as securities lending) might make a difference at the fractional-point level.  

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12 hours ago, whyme said:

I'm not sure what you are including in "all that stuff,"

I've listened to interviews where Bogle (after stepping down from Vanguard) gripped about some of Vanguard's offerings. I believe I've heard him complain about sector funds, ETFs, and investment strategies like focusing on small cap value stocks.

So I made the assumption that a lot of those things were added after Bogle stepped down as CEO in 96 and as chairman in 99. Maybe my assumption is wrong, but that would make his complaints a bit more confusing?

12 hours ago, whyme said:

I guess it's a matter of opinion whether funds charging a few basis points per year compete effectively with the ZERO funds. It remains to be seen whether the Fidelity funds actually do as well as the Vanguard equivalents

Yeah, I just meant they're not going to be able to win on price. Just to quantify the differences:

  • The domestic ZERO fund is 4 basis points cheaper and beat Vanguard by 35 basis points.
  • The international ZERO fund is 11 basis points cheaper beat Vanguard by 16 basis points.
12 hours ago, whyme said:

I think they use different indexes, and I'm guessing some behind-the-scenes stuff (such as securities lending) might make a difference at the fractional-point level.  

I'm told Fidelity made their own index, which means they don't have the expense of paying to use an existing index. I like that idea quite a bit.

I'm guessing everybody does securities lending, but maybe there are differences in how each fund/institution implements it?

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Thanks for that info about the Fidelity funds performance.

 I suspect we’ve heard or read many of the same Bogle interviews.  As I interpret him, he was against anything that promoted trading (this was his problem with ETFs).

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22 hours ago, whyme said:

I suspect we’ve heard or read many of the same Bogle interviews.

I'm legitimately sad there won't be any more to watch. I know he basically said the same thing every time, but what a pleasure to listen to.

22 hours ago, whyme said:

he was against anything that promoted trading (this was his problem with ETFs)

That's exactly right. Nothing wrong with holding a total market ETF for decades.

 

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1 hour ago, EdLaFave said:

I'm legitimately sad there won't be any more to watch. I know he basically sad the same thing every time, but what a pleasure to listen to.

I'm with you, Ed.  Bogle had few if any peers when it comes to lucidity and wisdom.

As to Vanguard's current management and loss leaders... I notice that today Vanguard has zeroed out commissions for stock and option trading, obviously in response to competition from Schwab, etc.  So I guess we can't rule out zero ER funds from them, or free toaster ovens for opening an account, or whatever they think they need to do to preserve their market share.

PS: https://www.cnbc.com/2020/01/02/low-fee-pioneer-vanguard-finally-joins-the-crowd-by-dropping-stock-commissions-to-zero.html

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8 minutes ago, whyme said:

I guess we can't rule out zero ER funds from them

I would love to see it.

At this point I'm waiting for a negative expense ratio that'll pay me to own the fund. The notion seemed ludicrous until a few years ago when I heard about central banks keeping interest rates below 0. So who knows?

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On 1/1/2020 at 8:10 PM, whyme said:

It remains to be seen whether the Fidelity funds actually do as well as the Vanguard equivalents:

AGREED!!! The proof is in the pudding. The proof leans towards Vanguard!!

Invest where you want. No point in taking this discussion too much further. All Fidelity Index funds have lower expense ratios than Vanguard now.  Bogle was great but times change. The business landscape has changed. Bogle was even against International Funds LOL!! Both V and F have positives and negatives. Fidelity is simply trying to undercut Vanguard's Index fund monopoly but beware the temptation to be lured into their other higher fee money making funds. You will do well with either choice if you stick with index funds. Beyond Index Funds Fidelity loses when it comes to fees.

This article while slightly dated info. makes some good comparisons:

 https://mymoneywizard.com/vanguard-vs-fidelity/.

I think it indicates the advantage goes to Vanguard at least for the immediate future. 

US. News and world report also chimes in :

An April working paper published under the Economic Research Initiatives at Duke University compares the two investment giants on 21 comparable funds in five aspects: performance, tax-efficiency, cost, diversification, benchmark and tracking precision. 

The report's research shows Vanguard has a better after-tax return and is more tax-efficient than Fidelity. In the funds sampled, Fidelity had a lower expense ratio than Vanguard. They also found Vanguard's funds are more diversified. Fidelity funds offer a higher tracking precision to their benchmarks than Vanguard, but the authors note the difference is small, as Vanguard's average tracking error is 0.08% and Fidelity's is 0.04%.

Todd Rosenbluth, director of ETF research at CFRA, says he's noticed Fidelity is increasingly launching index-based mutual funds and alternative-weighted ETFs, but that they remain predominately an actively managed fund shop. "Even within the ETF universe, they don't offer broadly diversified market-cap weighted index ETFs," he says.Rosenbluth says Fidelity partners with other firms on ETFs, including BlackRock, one of the top global ETF issuers. He considers Vanguard's ETFs to be more broadly diversified and are more building blocks and asset allocation products, whereas Fidelity's ETFs are either sector, smart beta or actively managed.

Still why are we having this argument? Wouldn't either choice be a great improvement for teachers over what is currently being sold ??

"Apparently when Vanguard and Fidelity compete, we all win! "

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10 hours ago, tony said:

Still why are we having this argument? Wouldn't either choice be a great improvement for teachers over what is currently being sold ??

Of course you are correct, Tony, that a portfolio of index funds at Vanguard or Fidelity (or index ETFs from Schwab, iShares or State Street for that matter) would be wildly superior to the high-cost insurance products and managed funds peddled to so many 403b holders.  

But I don't think we're having an argument at all, just a low-key conversation about changes at Vanguard and cost-cutting competition.  We're assuming that fund costs do matter and that we are making DIY choices about our portfolios.  I know that doesn't apply to everybody; the range of decent options in most 403b or 457 plans is quite limited.

I don't think we're confusing or discouraging newcomers by chatting about this here, I certainly hope we are not doing so.

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