Vanguard Slashes Expenses On VWO, Five Other International ETFs

by on February 28, 2011 | ETFs Mentioned:

Vanguard led all ETF issuers in cash inflows last year, thanks in no small part to a shift among investors towards the most cost-efficient ETF options. Now the company is lowering expenses on six of its international equity ETFs, reflecting greater efficiencies realized in the form of asset growth and operating cost reductions. The ETFs impacted by the expense ratio reduction include:

Ticker ETF Old ER New ER
VWO Emerging Markets ETF 0.27% 0.22%
VGK Europe ETF 0.16% 0.14%
VPL Pacific ETF 0.16% 0.14%
VT Total World Stock ETF 0.30% 0.25%
VEU FTSE All-World ex-U.S. ETF 0.25% 0.22%
VSS FTSE All-World ex-U.S. Small Cap ETF 0.40% 0.33%

The reduction to VWO makes it the cheapest option in the Emerging Markets Equities ETFdb Category–an honor previously held by Schwab’s SCHE. VWO recently became the largest U.S.-listed emerging markets ETF, surpassing iShares EEM. Both funds offer exposure to the MSCI Emerging Markets Index, but there is a considerable expense differential between the two. iShares recently lowered the fee on EEM from 0.72% to 0.69%, but at just 22 basis points, VWO is now cheaper than EEM by 0.47% [see ETF Investors Becoming Cost Conscious...Or Are They?].

Vanguard had more than $40 billion in inflows last year, topping iShares by about $10 billion. The company raked in another $4 billion in January, and many have attributed the firm’s success to its competitive expense ratios. Vanguard’s market share of ETP assets stood at about 15% in January according to data from the National Stock Exchange, up from 12.3% a year earlier [see Eleven Predictions For The ETF Industry In 2011].

Vanguard also lowered expense on several other share classes of its international equity products. The company holds a patent on a structure that allows it to offer ETFs as separate share classes of index mutual funds. That structure is one of the factors that allows Vanguard to keep down expenses on its ETF offerings. Assets in VWO, for example, stood at about $45 billion at the end of January, but total fund assets across all share classes was close to $60 billion. Those economies of scale have translated into lower expense figures on the ETF share classes.

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Disclosure: No positions at time of writing.