The fee war between BlackRock’s iShares and other issuers is on, with one of the world's largest investment management companies Vanguard trimming the expense ratio for the third time in three months.
These expense cuts are a major boon for investors, since a high expense ratio over the long term may eat into your returns significantly through the power of compounding. Banking on such positives, investing in Vanguard mutual funds seems to be judicious at the moment.
Third Round Of Expense Ratio Reductions
Vanguard lowered fees on 68 mutual funds and ETFs on Feb 24 as industry watchers are left wondering how low the expense ratios can go. Nevertheless, such a move has saved investors a cumulative $143 million across 124 fund shares reported over the last three months.
Vanguard, for quite some time, has been lowering its expense ratio across its product line-up, while almost all its funds and ETFs are currently the lowest priced in their respective categories. Among those that fall within the industry’s lowest cost decile are 99% of Vanguard’s US-domiciled mutual funds.
Vanguard CEO Bill McNabb said that “While Vanguard is lowering — and will continue to lower — the cost of investing; the so-called fee war is essentially over on the beta battleground. Investors have won.” He added that “the new fronts in the fee war are active management and advice. Again, investors will ultimately win”.
Among notable changes, the industry’s largest municipal bond fund, Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares (VWITX - Free Report) with $50 billion in assets saw a 25% expense ratio reduction from 0.12% to 0.09%. The $1.6 billion Vanguard Global Minimum Volatility Fund Investor Shares (VMVFX - Free Report) also experienced considerable reduction in expense ratios.
Pay Attention to Your Fund’s Expense Ratio
Low mutual funds fees are sure to attract investors. “There is no free lunch on Wall Street”, hence mutual funds too charge a fee. This involves fund management fee, agent commissions, registrar fees, and selling and promoting expenses, which fall under a single basket called expense ratio.
Expense ratio states how much you pay a fund in percentage term every year to manage your money. For example, if you invest $10,000 in a fund with an expense ratio of 1.5%, you are paying $150 to manage your money. In other words, if a fund earns 10% and has a 1.5% expense ratio, it would mean an 8.5% return for an investor.
5 Vanguard Mutual Funds for Your Portfolio
Thanks to the expense ratio cut by Vanguard, investors have been saving big. Amid such encouraging trends, it’s worth investing in some solid Vanguard mutual funds poised to grow in the near term. Vanguard offers nearly 300 low-cost funds, which allow the company to attract a significant portion of investor assets. The company believes that this structure helps management focus better on shareholder interests.
We have, thus, chosen five Vanguard mutual funds that possess a Zacks Mutual Fund Rank #1 (Strong Buy), have positive 3-year and 5-year annualized returns, minimum initial investments within $5000 and expense ratios considerably lower than the category average.
Vanguard Utilities Index Admiral (VUIAX - Free Report) employs an indexing investment approach designed to track the performance of the MSCI US Investable Market Index /Utilities 25/50, an index made up of stocks of large, mid-size, and small U.S. companies within the utilities sector, as classified under the Global Industry Classification Standard. The fund’s 3-year and 5-year annualized returns are 11.7% and 12.3%, respectively. Its annual expense ratio of 0.1% is below the category average of 1.23%.
Vanguard Materials Index Admiral (VMIAX - Free Report) employs an indexing investment approach designed to track the performance of the MSCI US Investable Market Index /Materials 25/50, an index made up of stocks of large, mid-size, and small U.S. companies within the materials sector, as classified under the Global Industry Classification Standard. The fund’s 3-year and 5-year annualized returns are 6.9% and 9.6%, respectively. Its annual expense ratio of 0.1% is below the category average of 1.43%.
Vanguard High Dividend Yield Index Investor (VHDYX - Free Report) employs an indexing investment approach designed to track the performance of the FTSE High Dividend Yield Index, which consists of common stocks of companies that generally pay dividends higher than average. The fund’s 3-year and 5-year annualized returns are 11.9% and 13.9%, respectively. Its annual expense ratio of 0.15% is lower than the category average of 1.07%.
Vanguard Balanced Index Investor (VBINX - Free Report) employs an indexing investment approach designed to track the performance of two benchmark indices. The fund’s 3-year and 5-year annualized returns are 7.2% and 9%, respectively. Its annual expense ratio of 0.22% is lower than the category average of 0.86%.
Vanguard Emerging Markets Stock Index Investor (VEIEX - Free Report) employs an indexing investment approach designed to track the performance of the FTSE Emerging Markets All Cap China A Inclusion Index, a market-capitalization-weighted index that is made up of approximately 3,500 common stocks of large, mid and small-cap companies located in emerging markets. The fund has given a whopping return of almost 31% in the last one year. Its annual expense ratio of 0.32% is below the category average of 1.48%.
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