Securities Mentioned in this Video:
- FTSE 100 ETF (VUKE)
- FTSE All-World ETF (VWRL)
- FTSE Emerging Markets ETF (VFEM)
- S&P 500 ETF (VUSA)
- UK Government Bonds ETF (VGOV)
Video Transcript:
Alanna Petroff: We all know that ETFs are a highly desirable way to get into the markets. You get the benefits of diversification and you also get the benefits of lower fees. There is also a bit of a price war going on in the industry right now amongst the main ETF providers, which is great for investors when there are lower fees. So joining me now to talk about the ETF industry and the ongoing price war is Vanguard’s Nick Blake.
So, Nick, let’s go over what’s going on in the industry in terms of costs right now and fees?
Nick Blake: Well, I’m glad to say I think we’re finally seeing some price competition, healthy price competition, for investors in this market. I think the advent of ETFs and indexing more generally means there is a better transparency on the value for money that certain products provide. So it’s good to see some healthy competition on price on behalf of investors.
Petroff: Now, Vanguard is known as one of the lowest cost ETF providers. You seem to be first in this space in this kind of low cost offering. Tell me a little bit more about that.
Blake: Well, low cost is really what Vanguard stands for and that’s to do with our ownership structure. We are owned by our investors. We operate under a mutual model. So the way that we demonstrate that mutuality to our clients is by continuing to lower the fees on their investments. So, for example, 30 odd years ago when we started Vanguard, our average costs were 0.9 of 1% around the world and today they stand at 0.2, and it’s continuing to drive down those costs really is what Vanguard stands for and that’s really in our DNA.
Petroff: Now over in the US, Vanguard offers a huge range of ETFs and there was news out recently that Vanguard is changing some of the benchmarks that the ETFs will be tracking from MSCI to FTSE, citing fees and lower fees. So explain that a little bit more.
Blake: Well, benchmark costs have over the years risen, and they are becoming a larger part of the total cost to the investor. So in line with our philosophy, we always look for ways of ensuring that we can continue to achieve cost savings, long-term cost savings, for our clients. In FTSE, and also another provider that we’re moving to, CRSP, we've identified two index managers there that provide world-class benchmarks, but also give us those at significant cost savings over the long-term. Those cost savings can quite frankly be passed onto investors.
Petroff: Now, BlackRock is one of the leading providers of ETFs around the world, and they are talking about cutting their fees over the next few months, a year, does that concern you?
Blake: It would be naive to think we wouldn't have any competition, but actually we’re delighted to see competition in this space. As we say, the lower the cost generally across the whole sector, the better news that is for investors more generally. So, yes, we would like to complete hard, as we've always done. Certainly, as I say, low costs are a way of life, not a marketing strategy for Vanguard. So we hope that those cost savings can persist for the benefit of investors.
Petroff: Okay. Now let’s go over the ETFs that you offer here in the UK market. You have a much wider selection of offerings in the US but you’ve come into the UK recently with your ETF offering. So we have five here. We have the:
- FTSE 100 ETF
- FTSE All-World ETF
- FTSE Emerging Markets ETF
- S&P 500 ETF
- UK Government Bonds ETF
So where are you seeing the most inflows right now over the last few months since you’ve launched?
Blake: Yes, it's early days as you say, because they are new products to the UK and we’re actually seeing good support across the whole range, which is no surprise, because we tend to go for broad indices that people want to invest in across the whole market. Perhaps given that we've invested here, it’s no surprise that we are seeing a certain home bias towards the FTSE products, but certainly the S&P and the emerging market is also doing very well.
Petroff: Okay. What about other offerings in the future? What are we going to see in the next year from Vanguard?
Blake: Yes, more to come. Obviously, early days. We are just looking to secure these products, get more market makers, get more authorized participants, and then we'll look to grow the range from there.
Petroff: Okay. Thanks for coming in.
Blake: My pleasure.
Petroff: That was Nick Blake from Vanguard. I'm Alanna Petroff, and thank you very much for watching Morningstar.
