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.

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The announcement coincides with the 15-year anniversary of Vanguard’s range of index funds for wholesale investors in Australia.

Speaking at a briefing in Sydney today, Vanguard’s Head of Product Management and Development, Robyn Laidlaw said the decision to reduce fees was possible due to significant growth in these funds and Vanguard’s ongoing commitment to maintain low cost fund offerings for investors.

“In an environment where costs matter more than ever, we are delighted to provide greater value to our investors,” Ms Laidlaw said.

“This announcement today sees some of our funds moving to about one fifth1 of the average Australian managed fund fee of the comparable asset classes.

“As a subsidiary of a client-owned parent company, which now manages in excess of $1.9 trillion for investors globally, we are well positioned to be able to pass on the benefit of growth in our funds back to our clients,” she said.

The reduced fees will take effect as at 1 August 2012.

Robin Bowerman, Vanguard’s Head of Corporate Affairs and Market Development explained what lower costs might mean in today’s investment environment.

 “This month marks 15 years since Vanguard began offering low cost index funds to Australian investors. Over that time, for every $100,000 invested in Vanguard’s Australian Shares Index Fund2, an investor would have made a saving due to a lower headline fee of over $25,000 versus a fund with an industry average fee.

“Both institutional and advisory businesses today are facing greater pressures on the fees they charge, with regulatory changes and market conditions shining a spotlight on fee structures,” said Mr Bowerman.

“Investors are no longer accepting of paying high fees for volatile performance, and rightly so.

“In bear markets, investors unfortunately see the compounding effect of higher fees, when returns are in single digit or negative territory,” said Mr Bowerman.

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Using the ticker code VGB, investors can now access Vanguard’s newest addition to its ETF line up, which can be accessed through a broker in the same way as individual shares. 

ETFs continue to gather pace in Australia. The latest data from the ASX show total market capitalisation of ETFs in Australia is $5.4 billion (including ETCs).

 Commenting on the new ETF listing, Robyn Laidlaw, Vanguard’s Head of Product Management and Development, said, “Fixed income is an important diversifier to a portfolio overweight in equities or cash.” 

“Accessing individual bonds using the traditional over-the-counter method can be difficult for individual investors and can involve large investment outlays,” she said. 

“At a cost of just 0.20 per cent per annum, this new ETF provides a very cost-effective way to incorporate a diversified portfolio of bonds which investors can trade just like shares.” 

Vanguard also this month launched a new wholesale inflation-linked bond fund, the Vanguard® Australian Inflation-Linked Bond Index Fund, and announced a lowered total annual fund operating expense for its Vanguard® US Total Market Shares Index ETF (VTS), which has decreased from 0.07 to 0.06 per cent per annum.

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This expense ratio change is due to the fund experiencing greater efficiencies through scale and Vanguard is passing these savings back to the fund investors in the form of lower expenses.

VTS is a cross-listed ETF, which means that its primary listing is on an overseas exchange and the fund is cross-listed, in this case, to the Australian Securities Exchange (ASX), making it accessible to Australian investors.  This type of ETF is priced in local currency (e.g. Australian dollars) and sold in Australia as CHESS Depository Interests (CDIs).

Speaking about the price change, Robyn Laidlaw, Head of Vanguard’s product management and development in Australia said, “We are delighted when we can pass on the benefit of the growth in a fund to our Australian investors in the form of a lower expense ratio.”

“Maintaining low costs for investors is part of our DNA at Vanguard with our low cost philosophy driven from the mutual structure of our parent company,” she said.

VTS began trading on the ASX in May 2009. The ETF seeks to track the performance of the overall US stock market using the benchmark MSCI® US Broad Market Index, which represents a broadly diversified portfolio of securities traded on the New York Stock Exchange and the NASDAQ over-the-counter market.

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Vanguard has long advocated diversification in and within asset holdings in investment portfolios and supports the provision of choice to investors to be able to access a fuller suite of asset classes via exchange traded funds.

Fixed income products can be a defensive investment tool that provides diversification by offering returns that are less volatile than equities and have a lower correlation to equity market returns. They can also be a good source of income in a portfolio.

‘Quality fixed income products have lower volatility when compared to equities and perform an important role in reducing the overall variability of portfolio returns.  Also particularly relevant to the prevailing market conditions, fixed income investing provides a source of reliable income during volatile times’, said Robyn Laidlaw, Head of Product Management & Development at Vanguard.

Using index ETFs or traditional index funds to access fixed income provides investors with a diversified portfolio of bonds with the benefits of liquidity and transparency. Research tells us that a vast majority of actively managed fixed income funds fail to beat the index consistently over short and longer time periods and the relatively narrow range of returns between the best and worst performers in this asset class magnifies the benefits of a low-cost strategy.

‘Yesterday’s decision will pave the way for Australian investors and their advisers to use fixed income ETFs to diversify their portfolio as easily as trading direct shares, and will offer an easy, low cost tool for augmenting portfolios which may be overweight in equities or lacking diversification due to a build up of cash’, said Ms Laidlaw. 

The changes to the rules governing ETFs will mean that investors will be able to access fixed income in the same manner as equity ETFs which have been available to Australian investors for the past 10 years. Investors have been able to access diversified fixed income portfolios through unlisted funds however the rule changes will now mean that investors, including direct and institutional investors and advisers, have more choice.

Today the global fixed income market is approximately $80 trillion which is almost twice as big as the global equities market.

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