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Expect More Admirals on Vanguard's Ship

New management at Columbia Energy lacks fuel, another 529 plan gets cheaper.

Flynn Murphy, mutual fund analyst, 08/01/2011

Vanguard said earlier this week that it is expanding its low-cost Admiral share class to more index funds, but don't expect the firm to stop there. Vanguard will make its Admiral shares available in six additional domestic- and international-equity index funds, including its popular Vanguard Developed Markets Index VDMIX.

Index investors pony up a bit more for the lower-cost share class. Admiral shares require a minimum $10,000 initial investment for index funds versus the average $3,000 minimum for the Investor class. Vanguard, which runs its funds at cost, offers its Admiral shares for index funds with at an average expense ratio of 0.18%. That can be about half the expense ratio of Investor shares, as it's able to spread expenses over larger accounts.

The move to expand the number of Admiral share choices is part of a longer-term rollout that started more than a decade ago. After launching the low-cost share class in November 2000 with just seven domestic index funds, Vanguard has continued to add the Admiral option to both active and passive funds. Assuming the six new funds pass a standard 60-day SEC review period, Vanguard will offer Admiral shares in 74 funds--of which 38 are passive index vehicles. Admiral shares already account for $525 billion of the firm's $1.7 trillion in U.S. fund assets under management. Vanguard made further moves to increase investment in the Admiral class last October when the firm changed the minimum investment to $10,000 from $100,000 for index funds.

The firm has been offering Admiral shares for sector-specific funds and index funds that are also offered as exchange-traded funds, which carry an expense ratio on par with the Admiral class. Vanguard still has six index funds that also come with an exchange-traded fund option, but no Admiral shares.

The largest of those remaining strategies is Vanguard Dividend Appreciation Index VDAIX, an $8.2 billion fund with an expense ratio of 0.30% for its Investor class and 0.18% in its ETF form. Another candidate for an Admiral share class is the $1.5 billion Vanguard Total World Stock Index VTWSX, a fund with expense ratios of 0.45% and 0.25% for the Investor shares and ETF shares, respectively. Rounding out the list of index-fund candidates with more than $1 billion in assets are Vanguard Long-Term Bond Index VBLTX, Vanguard FTSE All-World ex-US Small Cap VFSVX, and Vanguard High Dividend Yield Index VHDYX.

The Latest Vanguard Index Funds to Get Admiral Shares

Columbia Manager Replaced
A change in management at Columbia Energy & Natural Resources UMESX may not be enough to salvage this fund. Mike Hoover, who managed the fund for the past 16 years, was replaced this week by two senior analysts of the fund and Columbia's chief investment officer, Colin Moore. The analysts, Tom Abrams and Josh Kapp, each have more than two decades of experience working in the investment industry, but neither has prior experience managing a portfolio. The new management team will have the additional challenge of coming together despite geographic separation. Moore and Kapp have been working in Boston while Abrams had been working with Hoover in New York.

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