Buying the FTSE Just Got Cheaper
LONDON -- The message is simple: Low-cost mutually owned fund management giant Vanguard has done it again.
Arriving in the U.K. in 2009 and upsetting a cozy marketplace of high-cost index trackers with its own ultra-low-cost range, Vanguard has followed up by launching five low-cost physically replicated exchange-traded funds.
And, as the headline suggests, one of them tracks the FTSE 100 (INDEX: ^FTSE) , offering a total expense ratio (TER) of just 0.1%. As savvy investors know all too well, the name of the game in trackers and ETFs is to keep costs low -- and that TER of 0.1% is lower than any FTSE 100 tracker or ETF on the market.
It's also lower than all but one of the FTSE All-Share trackers on the market -- just matching the SWIP FTSE All-Share tracker offered exclusively to clients of Hargreaves Lansdown.
In short, it's a buy.
The news gets better
But not quite yet, it seems: The final pieces of paperwork are still going through the Financial Services Authority and the London Stock Exchange. But a listing is confidently expected in the next two or three weeks, explained Nick Blake, Vanguard's head of retail, when I picked up the phone and chatted to him about the launch.
"We're in the hands of the regulators," he said. "But it's a matter of weeks, not months -- and it could well be as short as just a couple of weeks."
But the critical piece of paper has already arrived: authorization from the Central Bank of Ireland. And that's because the new ETFs are to be Dublin-domiciled -- which can bring some handy tax advantages.
Not just the FTSE
Even better, the new Vanguard ETFs go beyond just the FTSE. The other four new ETFs provide investors with low-cost access to products tracking America's S&P 500 index, the FTSE All-World index, the FTSE Emerging Markets index, and U.K. government bonds.
And this is just for starters, Blake stresses.
"It's a start, and one that we'll build out from," he told me. "It's a good mix of ETFs to enter the market with, and we'll go from here, adding more as we go forward."
But in the meantime, here's the full list of the newly launched ETFs. As of this writing, they are not yet active.
|Vanguard FTSE 100 ETF||0.10%|
|Vanguard S&P 500 ETF||0.09%|
|Vanguard FTSE All-World ETF||0.25%|
|Vanguard FTSE Emerging Markets ETF||0.45%|
|Vanguard UK Government Bond ETF||0.12%|
Now, if you've read this far, it won't have escaped your notice that I think that this is very welcome news. I hold Vanguard trackers within my ISA and SIPP, and I suspect I'll be adding one or more of these ETFs, too.
In short, they fulfill some very obvious needs -- not just cheap FTSE-tracking, but access to other world markets as well. Heck, with government gilts in the mix, they're even a sort of "one-stop" asset-allocation tool.
And for investors using Hargreaves Lansdown's popular fund platform, there'll be some arithmetic to do. Do these ETFs, in short, offer a way around Hargreaves' controversial platform fee? For some investors, they may -- especially those with smaller savings pots.
That said, if you're new to ETFs -- and new to Vanguard, which only arrived here in 2009 -- you'll want to do some research. In particular, it's worth waiting until the listings are active to get a feel for the bid-offer spreads that will emerge from market makers.
This article, for instance, is one of several here on the Fool that will get you up to speed on what ETFs are, and why you should consider them. And here's a review of the market's cheapest ETFs -- or, at least, those that were the cheapest until today.
As for Vanguard itself, since pioneering the first retail index mutual fund more than 35 years ago, it has become a leading global provider of index vehicles including ETFs and trackers. Holding 741 billion pounds in index mutual fund assets and an additional 109 billion pounds in ETF assets globally, it has ETFs listed on exchanges in the United States, Canada, Mexico, and Australia.
The wider impact on the market shouldn't be underestimated. In less than three years, for instance, Vanguard's trackers have clocked up more than 3 billion pounds in funds under management -- and that's without a direct sales marketing operation.
In short, if you have a Vanguard tracker, then the odds are that you've learned about it from an IFA, through word of mouth, or through articles such as those here on the Fool.
And putting today's launch in stark context, iShares' FTSE 100 ETF is a whopping four times the cost of Vanguard's equivalent.
So is Vanguard set to clean up? Tom Rampulla, managing director of Vanguard Asset Management, laughed diplomatically when I put the question to him:
"What I will say, based on our experiences elsewhere in the world, is that if you track the underlying index well, and we do, and you have the lowest cost in the marketplace, and we do, then you tend to get your fair share of assets under management."
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At the time this article was published Malcolm Wheatley holds index trackers from Vanguard. He does not hold shares in any other company mentioned here. Fool U.K. owns shares in Hargreaves Lansdown and has recommended shares in Hargreaves Lansdown. The Motley Fool has adisclosure policy. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.