Costs matter – Vanguard sets the standard for low cost index funds

Vanguard today implemented cuts in fees for seven of its index fund offerings.

These fee changes have been made in line with Vanguard’s philosophy that keeping costs low is a significant factor in successful investment strategies.

Confirming the new fee structure in place from today, Vanguard’s Head of Product Management and Development, Robyn Laidlaw, said that the affected funds’ fees are now among the lowest in the Australian market. 

“In some cases, the new fees are one fifth of the average Australian wholesale managed fund fees for comparable asset classes [1],” she said.

Ms Laidlaw continued by saying that the fee changes have been made possible by the growth in Vanguard’s funds under management, and efficiencies driven by scale in these funds.

The reduced fees that come into force today are outlined below:  

“Low costs matter in both bear and bull markets,” said Ms Laidlaw.

“Investors can’t control the market just as investment managers can’t guarantee investment returns, but costs are one thing that can be controlled.”

Vanguard research shows that over time, savings on fees compound and can become very significant.

“In the 15 years since Vanguard began offering low cost index funds to the Australian market, for every $100,000 invested in Vanguard’s Australian Shares Index Fund, investors would have made an additional $25,000 due to lower costs, compared with the industry average fee [2],” she said.

2 August 2012

[1] Vanguard research based on Morningstar data and definition of ‘wholesale fund’
[2] Calculation assumes both industry average and Vanguard funds earn the annual historical return of the S&P/ASX 300 Index over 15 years commencing 30 April 1997. The industry average fee is calculated by Vanguard using Morningstar Direct data and definition of ‘wholesale fund’ and is the average fee for other Australian Shares wholesale funds minus Vanguard’s fund for the period 30 April 1997 to 30 April 2012. The fee used for Vanguard’s fund was 0.34% p.a. Assumes all distributions are reinvested with no capital withdrawals and takes no account of entry and exit fees and taxes. Assumes all other things are equal. The results would be different if an alternative index was chosen or if the survey of managers considered different or more funds. Past performance is not an indication of future performance.