Vanguard has announced “historic" reductions to the expense ratios for about 43% of its U.S.-based mutual fund and ETF share classes.
The asset manager, started by famed low-cost investor Jack Bogle, said the move would save end investors $350 million in 2025 and called it the “largest annual expense ratio reduction in Vanguard’s nearly 50-year history.”
The reductions are effective immediately across 168 mutual funds and ETF share classes across 87 funds, with an average reduction of 20% per share class. As of December 31, Vanguard had 306 mutual fund share classes and 88 ETF share classes domiciled in the U.S., according to a spokesperson.
The move signals that the fee war among fund managers will continue in 2025 as they jockey for market share. According to Morningstar, the generally lower-cost ETF market continued to boom in 2024, breaking the $1 trillion market for inflows for the first time to reach $10.3 trillion in total assets.
Vanguard’s total ETF assets under management stood at $2.84 trillion as of August 31, 2024, second only to BlackRock Inc.’s $3.03 trillion, also according to Morningstar.
“When thinking about our actively managed funds, our portfolio managers can take investment risk strategically as they don’t have to overcome the hurdle of high fees to add value,” Greg Davis, Vanguard president and chief investment officer, said in a statement.
The long-term trend of flows shifting to ETFs from mutual funds also continued in 2024. Mutual funds ended the year with $388 billion in outflows via Morningstar, as investors have been moving away from the generally higher-cost investment vehicles for years.
Vanguard’s average expense ratio for index funds, according to the firm, are:
- Fixed income ETFs: 0.04%
- Equity index ETFs: 0.05%
- Equity index open-end funds: 0.05%
- Fixed income index open-end funds: 0.05%
Vanguard announced expense ratio reductions in 2022 for some mutual funds and ETF share classes but not for as wide a swath of funds as in the current move.
