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Good News for Investors as ETFs Continue to Get Cheaper

The list of ETF providers who are cutting fees, or launching ever-cheaper funds, continues to grow and this can only be good news for investors

Holly Cook 1 October, 2014 | 3:12PM

There's been a hotly-denied price war taking place in the passive fund space for some time now. The reputation of exchange-traded funds as one of the cheapest ways to get exposure to a broad range of markets and indices has fuelled ETF providers to repeatedly try to undercut each other. Though the providers have repeatedly denied there's any war going on, this is a battle that should be welcomed by the end investor, who will benefit by having to give up less and less of their returns in the forms of fees. 

The entrance of one of the lowest-cost providers, Vanguard, into the UK market a few years back fuelled the price spat between providers, and Vanguard has today launched a handful of new funds priced to further attract cost-conscious investors.

The four new Vanguard ETFs are traded on the London Stock Exchange, domiciled in Ireland, and offer exposure to the FTSE 250, North American equities, developed Europe equities excluding the UK, and developed world markets. 

The new ETFs don't offer anything out of the ordinary in terms of the markets they track—Morningstar's Hortense Bioy, director of passive fund research in Europe, notes that they are "plain vanilla, broad market beta ETFs that investors can use as portfolio building blocks"—but the costs at which they offer such exposure is worth noting. 

The newly-launched funds' charges range from 0.10% for the UK mid-cap ETF to 0.18% for the broad developed world fund. "As usual, Vanguard seeks to offer the most competitively-priced products," says Bioy. "At 0.10%, the Vanguard FTSE 250 ETF (VMID) massively undercuts existing rivals such as the recently launched UBS FTSE 250 ETF (UC78), which has an ongoing charge of 0.25%, or the highly popular iShares FTSE 250 (MIDD), which charges a hefty 0.40%."

Though Vanguard often hits the headlines by offering some of the industry's cheapest ETFs, it is by no means the only provider to continuously shave pennies off its annual charges. State Street Global Advisors yesterday cut fees across 15 equity and fixed income SPDR ETFs that give access to broad market beta exposures. And the list of ETF providers cutting fees is getting longer: iShares, db X-trackers, Lyxor, Amundi, UBS, Source, Vanguard, and now SPDR. Bioy certainly see this as cause for celebration: "War or no war, the pressure is on, and it's good news for investors!"

Data on the newly-launched funds will be available on Morningstar.co.uk from October 2, 2014.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
iShares FTSE 250 ETF GBP Dist1,935.60 GBX-0.89

About Author

Holly Cook

Holly Cook  is Manager, Morningstar EMEA Websites

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