Asset managers hoping 2021 might bring some respite to the fee war are in for disappointment, if Vanguard’s latest ETF is anything to go by.
The $7.1 trillion investment giant this week filed plans for the Vanguard Ultra-Short Bond ETF, which will track high-quality fixed-income securities and is expected to begin trading next quarter.
The average cost of similar funds is about 0.22%, but Vanguard — whose low-cost approach helped it dominate ETF flows last year — is charging less than half that for the new actively managed offering. Its 0.10% expense ratio compares with 0.18% for the $15.9 billion JPMorgan Ultra-Short Income ETF (JPST) and 0.35% on the $14.4 billion PIMCO Enhanced Short Maturity Active ETF (MINT).
“Cost is one of the important factors that you see guiding investor choices,” said Rich Powers, Vanguard’s head of ETF product. “Low cost products are increasingly winning the lion’s share of the investor assets.”
Vanguard ETFs attracted a record $200 billion last year, with the passively managed Vanguard Total Stock Market ETF (VTI) leading the way. That fund carries an expense ratio of just 0.03%.
The top 20 more than doubled the gains of their fixed-income industry peers.
While the Malvern, Pennsylvania-based firm is known as a pioneer in index investing, its active management credentials are less-well established. The ultra-short fund will be its first active ETF to launch since 2018 and will fill a gap in Vanguard’s ETF lineup, Powers said.
“We have an offering in most every place an investor would want to build a diversified portfolio,” he said. “But in that space that toggles between money markets and short term bonds, we didn’t have an offer."
