Vanguard to Expand ETF Lineup by 20 Funds

Vanguard, the third largest exchange-traded fund provider as measured by assets under management (and the fastest growing of the top providers), announced today that it will expand its lineup of ETFs by 20 funds, bringing the total ETF offering from Vanguard to 66 funds. The lineup mainly consists of funds that are similar to existing products from competing providers, but it brings diversity to the Vanguard lineup. Included are 16 equity funds, based on S&P and Russell indexes, that segment the market by capitalization and style (value versus growth). There are also three municipal-bond funds and a global ex-U.S. real estate fund.

Perhaps the most noteworthy in the lineup is Vanguard's version of the S&P 500. Competitors State Street Global Advisors and iShares have long had S&P 500 funds available.  SPDR S&P 500 (SPY) is the largest and most widely traded ETF in the world. The first ETF ever created, it has accumulated more than $78 billion in assets under management since 1993. IShares S&P 500 (IVV) has been successful in its own right, garnering $22 billion in assets despite launching seven years after SPY. The iShares fund has a more modern legal structure that allows it to reinvest dividends, giving it a slight edge over SPY in tracking performance. 

Vanguard clearly cannot compete with these funds from a liquidity perspective, but it does narrowly edge them out based on price. With an expense ratio of only 0.06% (which will feel more like a rounding error than a fee), investors will be hard-pressed to find cheaper access to large-cap U.S. stocks from any fund provider. But the real advantage will come from the benefits of the ETF being a separate share class of  Vanguard 500 Index (VFINX). Because of a previous licensing spat, Vanguard had not been able to issue an ETF based on the S&P 500, but those issues have been resolved. With $91 billion in assets under management, the Vanguard 500 fund is almost as large as SPY and IVV combined. And despite the structural tax efficiency of ETFs over similarly constructed mutual funds, Vanguard has managed to keep the tax-cost ratio of its mutual fund below that of the competing ETFs. We anticipate that now having an ETF linked to the fund will only provide further opportunities for Vanguard to keep the fund even more tax-efficient.

 

SPY:

  3-Yr Avg % 5-Yr Avg % 10-Yr Avg % Pretax Return -8.67 0.27 -0.87 Tax-Adjusted Return -9.37 -0.32 -1.36 % Rank in Category 77 67 67 Tax-Cost Ratio 0.77 0.58 0.49         Potential Cap Gains       Exposure% 4      

 

VFINX :

  3-Yr Avg % 5-Yr Avg % 10-Yr Avg % Pretax Return -8.72 0.23 -0.90 Tax-Adjusted Return -9.02 -0.07 -1.26 % Rank in Category 33 34 49 Tax-Cost Ratio 0.33 0.30 0.36         Potential Cap Gains       Exposure% 14.4      

 

IVV:

  3-Yr Avg % 5-Yr Avg % 10-Yr Avg % Pretax Return -8.68 0.27 -0.87 Tax-Adjusted Return -9.36 -0.41 -1.48 % Rank in Category 73 80 100 Tax-Cost Ratio 0.74 0.68 0.61         Potential Cap Gains       Exposure% -26