Vanguard, the largest U.S. mutual fund provider, has reduced the annual expense ratios on 22 ETFs. The fee cuts will affect 10 industry sector funds, eight bond funds, and four broad equity funds. Fee reductions have been a boon to ETF investors and Vanguard's move is largely due to structural changes within the ETF industry as fund companies battle for assets by reducing management fees.
In September, Charles Schwab (NYSE:SCHW) cut costs on its lineup of 15 ETFs to as low as 0.04%. BlackRock (NYSE:BLK) followed with similar fee ctus on its iShares ETFs.
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In October, Vanguard announced plans to abandon MSCI indexes in favor of alternative benchmarks for 22 of its largest index mutual funds and ETF shares. The move is a cost cutting effort to minimize the expenses of index licensing fees.
Sector funds like the Vanguard Industrials (NYSEARCA:VIS), Vanguard Information Technology (NYSEARCA:VGT), and the Vanguard Utilities (NYSEARCA:VPU) now charge 0.14% annually compared to 0.19% before.
Expense ratios may fluctuate from year to year based on changes in the cost of managing the funds. For example, economies of scale resulting from an increase in a fund's total assets due to market appreciation or cash flow can help reduce its expense ratio, while a decline in assets can cause the expense ratio to rise.
All of the Vanguard ETFs listed in the table below have fiscal years ending in August and reflect Vanguard's filings with the SEC as of December 27, 2012.
Other ETF NewsThe ProShares Merger ETF (BATS:MRGR), a fund that follows a merger arbitrage strategy, was launched on Dec.13.
Merger arbitrage strategies aim to capture the spread between a target company's stock price after a proposed merger or acquisition is announced and the deal price that the acquiring company will pay for the target company.
"The goal of MRGR is to produce consistent, positive returns under virtually any market conditions," said Michael L. Sapir, Chairman and CEO of ProShare Advisors LLC, ProShares' investment advisor.
MRGR provides exposure to up to 40 publicly announced mergers or acquisitions within developed market countries through a combination of long and, in certain cases, short security positions. When deals enter the Index, the weight in long positions of target companies is initiated at three percent (3%) and the initial weight in short positions of the acquiring company ranges between zero and three percent (0% and 3%), depending on terms of the deal
MRGR charges 0.75% annually and is linked to the S&P Merger Arbitrage Index.
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