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Vanguard Signals Fee War Intensifies With Active Bond ETF Plan

Vanguard this week filed plans for the Vanguard Ultra-Short Bond ETF, its first active ETF to launch since 2018, and with an expense ratio of 0.10%.

 

(Bloomberg) -- Asset managers hoping 2021 might bring some respite to the fee war are in for disappointment, if Vanguard Group’s latest exchange-traded fund is anything to go by.

The $7.1 trillion investment giant this week filed plans for the Vanguard Ultra-Short Bond ETF, which will track high-quality fixed-income securities and is expected to begin trading next quarter.

The average cost of similar funds is about 0.22%, but Vanguard -- whose low-cost approach helped it dominate ETF flows last year -- is charging less than half that for the new actively managed offering. Its 0.10% expense ratio compares with 0.18% for the $15.9 billion JPMorgan Ultra-Short Income ETF (ticker JPST) and 0.35% on the $14.4 billion PIMCO Enhanced Short Maturity Active Exchange-Traded Fund (MINT).

“Cost is one of the important factors that you see guiding investor choices,” said Rich Powers, Vanguard’s head of ETF product, in a phone interview. “Low cost products are increasingly winning the lion’s share of the investor assets.”

Vanguard ETFs attracted a record $200 billion last year, with the passively managed Vanguard Total Stock Market ETF (VTI) leading the way. That fund carries an expense ratio of just 0.03%.

While the Malvern, Pennsylvania-based firm is known as a pioneer in index investing, its active management credentials are less-well established. The ultra-short fund will be its first active ETF to launch since 2018 and will fill a gap in Vanguard’s ETF lineup, Powers said.

“We have have an offering in most every place an investor would want to build a diversified portfolio,” he said. “But in that space that toggles between money markets and short term bonds, we didn’t have an offer.”

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