The World’s Largest Fund Gets Even Cheaper for Investors

The World’s Largest Fund Gets Even Cheaper for Investors

The world’s largest fund just got a bit cheaper for investors. The fee for Vanguard Total Stock Market ETF (VTI) and Admiral share classes were reduced to 0.04%. VTI’s extreme low fee is much lower than its peers’ 0.90% median fee. As a result, investors pocket these monies while VTI outperforms its competitors due to sizable fee advantage.

Vanguard Total Stock Market ETF and Vanguard Total Stock Market Index Fund gives investors option to invest in a diversified U.S. stock market. As reported on Morningstar: “Broad diversification is an intrinsic advantage of funds tracking market-capitalization-weighted total stock market indexes, which capture nearly the entirety of the investable market capitalization of the U.S. equity market… Low turnover is another key advantage of a fund tied to a cap-weighted benchmark. Lower turnover equates to lower costs and a lesser likelihood of taxable capital gains distributions. VTI’s median annual turnover was 10% during the trailing 10-year period. This compares with a median figure of 66% for its category peers.”

Normally, passively managed funds outperformed actively managed funds. Low fee from passive funds is one of the reason. Morningstar completed a study of 562 actively managed funds in the U.S. large-growth category and 25 passively managed funds. In the 10 years ending in 2014, passively managed funds’ asset-weighted return was an average 9.27 percent versus actively managed funds’ 8.05 percent. Overall, the reduction in fee to 0.04% from 0.05% for the the world’s largest fund is another win for investors and passive funds.

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