Vanguard fee cuts disappoint as rivals remain cheaper

$5trn funds giant touts savings for investors as it drops fees on 36 products

SEAN HAGERTY Vanguard

A Vanguard drive to slash fees across 36 products has been met with disappointment as rival products from asset managers like HSBC and Blackrock remain cheaper.

The Vanguard ETF range now has an average ongoing charges figure of 0.10% while its index funds now carry an average OCF of 0.15%.

The fee cuts on its passive range follows a move in June to drop charges across four of its UK-domiciled active funds from 0.6% to 0.48%. The Vanguard Active UK Equity Fund, run 50/50 by Marathon Asset Management and Baillie Gifford, launched this month with an OCF of 0.45%.

HSBC, Blackrock and Amundi offer cheaper alternatives

But Seven Investment Management senior portfolio manager Peter Sleep thought the latest fee cuts were “disappointing” pointing out rival asset managers are offering cheaper products.

For example, the iShares Core MSCI EM IMI ETF is 0.18% while the Vanguard FTSE Emerging Markets Ucits ETF is now 0.22% having been cheapened from 0.25%.

In Japanese equities, the Amundi Prime Japan ETF, at 0.05%, is still a third cheaper than the Vanguard FTSE Japan Ucits ETF, which has fallen four basis points to 0.15%.

In the index range, the HSBC Global Corporate Bond fund is 0.10% for a sterling-hedged share class compared to 0.18% for the Vanguard Global Corporate Bond Index Fund.

Vanguard so strong it doesn’t need to be cheapest

Sleep said he does not use Vanguard as much as he used to saying it was more competitive seven years ago. “Having said that Vanguard inflows are so strong they do not need to be the cheapest,” he said.

Morningstar also pointed out some of Vanguard’s index funds were looking “relatively toppy” cost-wise. “Vanguard is far from being at the forefront when it comes to fee cuts in Europe,” said Morningstar associate director of passive strategies Jose Garcia Zarate, who pointed to iShares fee cuts for index funds and ETFs earlier this year and similar moves from Xtrackers.

Garcia welcomed any fee cut nonetheless.

Tilney head of multi-asset funds Ben Seager-Scott agreed the latest price cuts were not the most aggressive moves seen in the market recently “and essentially bring these products broadly into line with where others have moved recently”.

But Seager-Scott said he would rather stick with a low-cost provider who has demonstrated a consistent track record of pushing prices lower over time, like Vanguard, rather than constantly shifting between “roughly-equivalent” products for the sake of a few basis points. This is to avoid frictional trading costs and the constantly shifting pricing points, he said.

‘Costs really impact returns’

Despite Vanguard not necessarily undercutting its rivals on costs, it emphasised the importance of fees for investor returns in the press release announcing the changes to its passive range.

“For too long, investors have been poorly served with high-cost, complex investments,” said head of Vanguard for Europe Sean Hagerty (pictured).

He added that more work was needed so investors understood the impact of costs on investment returns.

“There is still a misconception that the more you pay for an investment, the better it performs. In reality, costs really impact the returns investor make – every pound paid in fees is a pound off investors’ returns. Investors cannot control the markets, but they can control the fees they pay.”

A spokesperson added the move was “not about undercutting our competitors on one or two products”.

They told Portfolio Adviser: “This is about leading the way to lowering fees across the board. Other firms may lower costs on select categories, or offer a separate brand of low cost products to attract assets. We will continue to look for ways to lower the cost and complexity of investing for all investors.”

Money market fund drops fees three months after launch

Vanguard has also cut fees on its Sterling Short-Term Money Market Fund, which only launched in July. The Vanguard money market fund will now be 0.12% instead of 0.15%.

At the time of launch, Sleep thought Vanguard had missed a trick by failing to incorporate an ESG overlay, which Blackrock introduced in its Liquid Environmentally Aware Fund (Leaf) several weeks later.

Both Vanguard and Blackrock were criticised in September for undermining shareholder votes on climate change resolutions.

The funds affected in the Vanguard fee changes

Vanguard fee cuts on ETFs

Irish domiciled ETF fee reductionsOld OCFNew OCF
FTSE All-World Ucits ETF0.25%0.22%
FTSE Developed Asia Pacific ex Japan Ucits ETF0.22%0.15%
FTSE Developed Europe ex UK Ucits ETF0.12%0.10%
FTSE Developed Europe Ucits ETF0.12%0.10%
FTSE Developed World Ucits ETF0.18%0.12%
FTSE Emerging Markets Ucits ETF0.25%0.22%
FTSE Japan Ucits ETF0.19%0.15%
EUR Corporate Bond Ucits ETF0.12%0.09%
EUR Eurozone Government Bond Ucits ETF0.12%0.07%
UK Gilt Ucits ETF0.12%0.07%
USD Corporate 1-3 Year Bond Ucits ETF0.15%0.09%
USD Corporate Bond Ucits ETF0.12%0.09%
USD Treasury Bond Ucits ETF0.12%0.07%

Vanguard fee cuts on index funds

Index Fund fee reductions Old OCFNew OCF
Emerging Markets Stock Index Fund0.27%0.23%
Global Small-Cap Index Fund0.38%0.29%
Japan Stock Index Fund0.23%0.16%
Pacific ex-Japan Stock Index Fund0.23%0.16%
SRI European Stock Fund0.30%0.16%
SRI Global Stock Fund0.35%0.22%
Euro Government Bond Index Fund0.25%0.12%
Euro Investment Grade Bond Index Fund0.30%0.12%
Global Corporate Bond Index Fund0.25%0.18%
Global Short-Term Corporate Bond Index Fund0.25%0.18%
Japan Government Bond Index Fund0.25%0.12%
UK Government Bond Index Fund0.15%0.12%
UK Investment Grade Bond Index Fund0.15%0.12%
UK Short-Term Investment Grade Bond Index Fund0.15%0.12%
US Government Bond Index Fund0.25%0.12%
US Investment Grade Credit Index Fund0.30%0.12%
FTSE Developed World ex-UK Equity Index Fund0.15%0.14%
FTSE Global All Cap Index Fund0.24%0.23%
FTSE UK All Share Index Unit Trust0.08%0.06%
FTSE UK Equity Income Index Fund0.22%0.14%
UK Inflation-Linked Gilt Index Fund0.15%0.12%
UK Long Duration Gilt Index Fund0.15%0.12%

Vanguard fee cuts on money market fund

Active Fund fee reductionsOld OCFNew OCF
Sterling Short-Term Money Market Fund0.15%0.12%

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