Mutual fund expense ratios can go up and down — even at
Vanguard Group Inc. The company has raised expense ratios on 52 funds in the past six months, although they're still lower than an ant's shoelaces.
“With the release of its December 2015 annual reports, fully 52 Vanguard funds (counting separate Investor, Admiral, ETF and Institutional share classes) saw their expenses rise rather than fall over the past six months,” Dan Wiener, editor of the Independent Adviser for Vanguard Funds, wrote. “The largest increase was a 33% jump in the expense ratio for their Intermediate-Term Bond Index Institutional Plus fund.”
Before you get too excited, that increase was 0.01 percentage point, from 0.03% to 0.04%, between June 30 and Dec. 31. But Vanguard's press releases use percentage increases when it announces expense-ratio reductions, Mr. Wiener notes. “They're the ones who look at one- and two-basis-point changes and talk about percentage changes,” he said. “That's what I did.”
Vanguard, not surprisingly, wasn't impressed with Mr. Wiener's findings. “It is inaccurate and misleading,” said Vanguard spokesman John Woerth. “Expense ratios are backward looking and reported annually in the prospectus. This is the industry standard and the prospectus figure is the expense ratio of record. Mr. Wiener is pulling annualized figures from semi-annual reports to make his comparison.”
Mr. Wiener disagreed. “All you have to do is look at any annual report from Vanguard, which says that expense ratios represent estimated costs for the current fiscal year,” he said.
The footnote in most recent annual report for the Vanguard Balanced Index fund, for example, says, “The fund expense ratios shown are from the prospectus dated April 29, 2015, and represent estimated costs for the current fiscal year.”
Expense ratios tend to vary from time to time on many funds. Many fund companies, including Vanguard and archrival Fidelity, will charge higher expenses if a fund outperforms its benchmark.
Fidelity Contrafund, for example, has seen its expense ratio, net of all reductions, vary from 0.81% in 2011 to 0.64% in 2014, according to its prospectus.
In Vanguard's case, rounding can make a difference as well, Mr. Woerth pointed out. “A 0.134% expense ratio is rounded to 0.13%; a 0.136% expense ratio is rounded to 0.14%,” he noted.
In February, Vanguard announced its third round of expense ratio cuts, resulting in savings of nearly $142 million to date for investors in 130 fund shares. “The continued adoption of the Vanguard way of investing, coupled with asset growth related to favorable financial markets, enables us to reduce the cost of investing for all our investors from financial advisors and institutional investors to IRA savers and 529 plan holders,” Vanguard chief executive Bill McNabb said in the Feb. 26 press release.
“It's always nice to see expenses fall, but when you're talking one or two basis points on already low expense ratios, it gets harder and harder to make any real news out of it,” Mr. Wiener says. “And it's no surprise that Vanguard would rather promote expenses falling over 12 months than expenses rising over six."
Overall, Vanguard remains one of the
lowest-cost mutual fund options on the planet. The highest expense ratio on Mr. Wiener's list was the Vanguard Balanced Index fund, with an expense ratio of just 0.22%. Vanguard's average expense ratio is just 0.18%, 82% less than the industry average.
