Vanguard today announced that clients invested in its wholesale pooled funds saved $9.3million in the 2011/12 financial year through ‘crossing savings’ or reduced spread costs.
A crossing or ‘special spread’ saving occurs when monies to be invested in a Vanguard fund are used to meet client withdrawals received on the same day.
In this situation, Vanguard does not need to transact securities on-market and as a result saves on transaction costs.
Geoff Diamond, Principal, Institutional, said Vanguard’s philosophy has always been that keeping costs low is a significant factor in successful investment strategies.
“Where a crossing occurs, clients will benefit directly from the resulting reduction in the normal buy and sell spreads,” he said.
Mr. Diamond went on to say that in addition to the crossing savings, Vanguard recently reduced the fees on a number of its wholesale funds and has also revised the headline buy and sell spreads for a number of its funds as of 3 September 2012.
“Buy and sell spreads represent the costs that Vanguard funds incur when buying or selling investments. Costs can include brokerage, custody fees and market impact, and spreads protect existing clients from the costs associated with the transaction activity of other clients,” Mr. Diamond explained.
“The spreads remain within the funds to offset those transaction costs. They are not fees paid to Vanguard.
“We regularly review the buy and sell spreads to align them with the real costs of transacting and to reflect changing conditions in the various markets.”
“Recent tightening in liquidity in the domestic bond market, improved efficiencies in trade execution in international credit and domestic inflation linked bonds, as well as improved spreads in underlying equity markets, are all reflected in the changes in our buy and sell spreads which were effective in September 2012,” he said.