Vanguard fires another shot in ETF fee war

JUL 29, 2012
The Vanguard Group Inc. will be the first to tell you that it isn't in the midst of an ETF fee war, but its competitors must feel that way. Last Tuesday, Vanguard filed with the Securities and Exchange Commission to offer a short-term Treasury inflation-protected securities exchange-traded fund. It will track the Barclays U.S. Treasury Inflation-Protected Securities 0-5 Years Index, which also happens to be the underlying index for the $358 million iShares Barclays 0-5 Year TIPS Bond ETF (STIP). To no one's surprise, the Vanguard version will carry a much lower expense ratio of 0.1%; the iShares ETF has an expense ratio of 0.2%. Vanguard's low-cost approach to investing has been a home run with investors since the financial crisis. Over the five-year period through June 30, the firm's assets grew 40% to almost $1.7 trillion. Meanwhile, overall industry assets grew just 10%. Vanguard's dominance has been particularly vexing to BlackRock Inc.'s iShares segment, which has been losing market share for more than two years to Vanguard's ETFs. Since 2010, Vanguard's ETFs have had inflows of nearly $100 billion, while iShares, the largest ETF provider, with $482 billion in assets, has taken in $56.7 billion.

"A BIG ISSUE'

On BlackRock's second-quarter conference call this month, chief executive Laurence D. Fink acknowledged the struggles iShares is having in core U.S. equity products, which Vanguard considers its sweet spot. “Without going into much detail, we believe we have a plan to address it over the coming months. And it is a big issue, and I have to give a lot of credit to Vanguard — they are a trustworthy brand, and they have taken market share from BlackRock in the U.S. core type of equity products,” Mr. Fink said. A Vanguard spokesman declined to comment. [email protected] Twitter: @jasonkephart

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