Vanguard takes low-cost mantra to caffeine junkies

Vanguard's 'At-Cost Cafe' is touring the country selling 26-cent cups of coffee. Why? To make a point about mutual fund expenses.
JUN 15, 2013
Watch out Starbucks, there's a new coffee-slinging kid on the block named The Vanguard Group Inc. That's right, the world's largest mutual fund company has taken its low-cost mantra to the caffeine junkies. The Malvern, Pa.-based firm has launched an “At-Cost-Café” that offers 26-cent cups of coffee (even iced) that cost one-fifth of the average cup of Joe. Not coincidentally, Vanguard's funds are, on average, about one-fifth the cost of the average fund. The café, a red coffee truck, has made stops in San Diego, San Francisco, Chicago, and Washington, D.C., so far, resulting in about 5,700 sales, or $5,928 worth of savings, said spokeswoman Katie Henderson. It's in New York on Monday and then it's heading to Boston. Unfortunately for coffee drinkers, Vanguard's dalliance with the coffee industry is only a bit of marketing aimed at highlighting the importance of cost when investing. Whether the ordinary 26-cent coffee customer makes that connection is anyone's guess, but what's clear is that investors have already tuned into the low-cost message. U.S. equity mutual funds and exchange-traded funds with expense ratios in the lowest quartile have had net inflows of $442 billion over the past decade, according to Morningstar Inc. data collected by Vanguard. Equity funds and ETFs with higher expense ratios saw investors flee to the tune of $368 billion over the same time period. The trend is clear even within ETFs, which are generally lauded for their low costs, relative to mutual funds. The lowest quartile of ETFs by expense ratio had $152 billion of inflows while the more expensive options took in $52 billion.

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