Money talks, but Vanguard’s new strategy is speaking to both investors’ hearts and wallets. The investment giant announced yesterday that it would reduce expense ratios by an average of 20% across 87 funds — a move that’ll save investors $350M this year. The sweeping changes, spearheaded by new CEO Salim Ramji, affect nearly half of Vanguard’s US fund lineup and reinforce the firm’s commitment to low-cost investing.
- The company’s growth has been astronomical, with investors pouring $306B into US Vanguard ETFs last year, enabling greater economies of scale and subsequent fee reductions.
- Currently, 86% of Vanguard’s mutual fund and ETF assets sit in the lowest-cost decile of their peer groups, with their index fixed-income ETFs averaging just 0.037% in expenses.
Low fees, high advantage: The move could pressure other asset managers — including big competitors like BlackRock’s iShares and State Street’s SPDR — to follow suit in what’s historically been dubbed “the Vanguard effect.” The industry has already seen the asset-weighted average mutual fund fee plummet from 0.87% in 2004 to 0.36% in 2023. With a focus on both passive and active funds, Vanguard’s president, Greg Davis, emphasizes that lower fees mean portfolio managers can be more patient, avoiding unnecessary risks to offset expenses — a competitive advantage that keeps getting sharper.
