Tracker fund giant Vanguard has responded to growing competition in the race to the bottom on fund fees by cutting the price of 36 of its funds, almost all of which are passive offerings.
Out of 36 of funds seeing a fee cut, 13 are ETFs, 22 are index funds and one – the Sterling Short-Term Money Market Fund, is an active fund with a new ongoing charge of 0.12%.
The average charge across Vanguard’s entire range, including active funds, is 0.20% and this drops to 0.15% for passive funds.
Vanguard's move follows similar cuts by iShares and Xtrackers earlier this year, says Morningstar associate director of passive research, Jose Garcia Zarate. He notes that while this latest move is good for investors, Vanguard's fees had been starting to look high relative to their competitors before this cut. Bond fund fees are under pressure across the industry, he adds.
He also warns that "the longer this fee war goes on, we’ll reach a point where the differences in fees between passive funds may be insignificant in terms of potential savings for investors". He says that the choice of the right index is still the key element for passive investing, rather than focusing purely on fees.
The Vanguard FTSE All Share Unit Trust now has a fee of just 0.06%, or six basis points, a cut from 0.08%. The fund has a Silver Rating from Morningstar and has a four-star quantitative rating. Morningstar analyst Dimitar Boyadzhiev says the fund is very competitively priced relative to its peers and has outfperformed those rivals over three and five years.
Bond Fees Slashed
The tracker fund now has the lowest fee in the index range, while the Global Small-Cap Index Fund has the highest with 0.29% (cut from 0.38%). Funds fees that have more than halved include the Euro Government Bond Index Fund (from 0.25% to 0.12%), the Japan Government Bond Index Fund (also from 0.25% to 0.12%), and the US Government Bond Index Fund (again from 0.25% to 0.12%). The charge on the US Investment Grade Credit Index drops from 0.30% to 0.12%, a fall of 18 basis points.
Vanguard’s move comes after Fidelity introduced a “fee-free” range of funds in 2018 in the US. While the fund firm has so far not rolled this out in Europe, the move confirmed the direction of travel in the fund space towards ever-lower fees.
Morningstar’s Russel Kinnel says that in the US, Fidelity could afford to go “fee-free” because they can make up the lost fees from its active range, where it is still a big player.
“But for Vanguard and BlackRock, where indexing is the core of their business, zero-fee index funds are much trickier. You don't want to run the core of your business at a loss,” Kinnel adds.
He adds that younger investors could benefit most from the race to zero in the fund industry: “Sometimes investors start out by buying the exciting stuff and leaving their core a little neglected. Well, here's your chance.”
In summary, he says that fee cuts may make the headlines but don’t make a huge impact on your bottom line.
Sean Hagerty, head of Europe for Vanguard, says: “Investors cannot control the markets, but they can control the fees they pay.”
Australia, the United States and the Netherlands have the lowest fund fees worldwide, according to the latest Global Investor Experience study. Fees are moving in the right direction in the UK, says Morningstar UK head of research, but there is still more work to be done.
