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Vanguard reduces ETF fees, offering cheapest bond fund

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Vanguard escalated an industry price competition by lowering fees on three of its popular products.

The asset manager will reduce fees on its Vanguard Total Bond Market ETF (BND), making it the cheapest U.S. bond fund, according to regulatory filings. The firm also plans to cut costs on the Vanguard S&P 500 ETF (VOO), dropping them below offerings by BlackRock and State Street that track the same index. And the company is pushing down fees on its Vanguard Total Stock Market ETF (VTI).

The development is part of an intensifying price war in ETFs and focuses more attention on the specter of zero-fee funds in the industry. SoFi said Monday it will help start two ETFs that won’t charge any management fee for at least the first year.

Vanguard, which isn’t publicly traded, has been one of the driving forces in the industrywide competition over prices. BlackRock is largest provider of ETFs.

Fees were nearly half the price of the top-performing active funds.
September 4

“These Vanguard products are already extremely popular and investors are only more likely to gravitate toward them as they focus more (too much in my view) on fees,” Todd Rosenbluth, director of ETF Research at CFRA Research, wrote in a note.

BND will change its expense ratio to 0.035%, according to the filings. That makes it cheaper than comparable funds: SPDR Portfolio Aggregate Bond ETF (SPAB) carries an expense ratio of 0.04%, and iShares Core U.S. Aggregate Bond ETF (AGG) maintains an expense ratio of 0.05%.

VOO will have an expense ratio of 0.03%, making it cheaper than iShares Core S&P 500 ETF (IVV) and well below SPDR S&P 500 ETF Trust (SPY). VTI will also lower its expense ratio to 0.03%.

Bloomberg News