10 ETFs Cheaper Than Their Vanguard Peers

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Vanguard offers funds that have some of the lowest expense ratios in the industry. Offering funds at-cost was a novel idea that made Vanguard the world’s largest mutual fund company, with about $1.6 trillion in assets.

VanguardIt took a while for competition to take notice, but now there are fund companies that offer funds that are priced lower than their Vanguard peers.

Here’s a list of the ten, commonly used ETFs that have an expense ratio lower than that of Vanguard’s. (ETF commissions have not been considered in the preparation of this list.)

Large Cap – Value (VTV vs. SCHV)
Schwab’s U S Large Cap Value ETF (SCHV), tracks the Dow Jones’ U.S. Large-Cap Value Total Stock Market Index and has an expense ratio of 0.13 which is less than that of its Vanguard peer, VTV, which has an expense ratio of 0.15. Schwab started offering this ETF towards the end of 2009. Vanguard’s assets are over 19 times that of Schwab’s!

Large Cap – Blend (VV vs. FLG)
In the large cap blend category, we have Morningstar’s aggressively priced FLG with an expense ratio of just 0.05% as opposed to Vanguard’s VV, with an expense ratio of 0.13%. FLG is entirely composed of US and Europe sectors whereas VV has a small exposure to Canada. Both have zero exposure to Asia.

Large Cap – Growth (VUG vs. SCHG)
Schwab once again undercuts Vanguard’s Growth ETF, VUG, with its own SCHG with an expense ratio of 0.13% versus Vanguard’s 0.15% ER.
Technology, Industrials and Health Care form the top 3 sectors for SCHG; VUG’s top three sectors are Technology, Industrials and Consumer Discretionary.

Mid Cap – Blend (VO vs. FMM)
Morningstar introduced its Focus Morningstar Mid Cap Blend ETF, FMM, at the end of March last year. It has $4.6M assets under management and an expense ratio of 0.12. Vanguard’s VO has $3.2B (that’s a B!) assets under management and and expense ratio of 0.15.

Small Cap – Blend (VB vs. FOS, SCHA)
In this category, we have both Schwab and Morningstar offering ETFs priced lower than that of Vanguard’s VB (0.17% ER). Schwab with SCHA has an expense ratio of 0.13% and Morningstar’s FOS has an ER of 0.12%.

Total Bond Market (BND vs. SCHZ)
Both Vanguard’s BND and Schwab’s SCHZ both track the same index – Barclays Capital U.S. Aggregate Bond Index. The difference is in their sizes. Vanguard has $13.8B assets under management and Schwab has $174.6M. BND’s ER is 0.11%. Schwab’s SCHZ is cheaper by 0.01% at 0.09%!

Short-Term Government Bond (VGSH vs. TUZ)
PIMCO’s TUZ vs. Vanguard’s VGSH. Both hold short term government bonds maturing in 1 to 3 years. VGSH tracks the Barclays Capital U.S. 1-3 Year Government Bond Index whereas TUZ tracks BofA Merrill Lynch 1-3 Year US Treasury Index. The comparison between these two funds are well matched as PIMCO is one of the world’s largest fund companies and home to the largest bond fund, PIMCO Total Return Fund.

TUZ has $143.0 M assets under management and VGSH has $170.6 M. TUZ is priced lower with and ER of 0.09% versus Vanguard’s VGSH at 0.14%.

Intermediate-Term Government Bond (VGIT vs. SCHR)
Intermediate bonds have a duration of 3 to 10 years. Vanguard’s VGIT tracks the Barclays Capital U.S. 3-10 Year Government Index and has an expense ratio of 0.14%. Scwhab’s SCHR which tracks the same index is cheaper at 0.12% ER. But this is one ETF from Schwab that’s managed to overtake Vanguard’s VGIT in terms of total assets, even though SCHR is newer than VGIT. Schwab has $122.39M and Vanguard has just $81.68M.

Short-Term Corporate Bond (VCSH vs. SCPB)
Vanguard’s VCSH tracks Barclays Capital U.S. 1-3 Year Corporate Bond Index while State Street’s SCPB tracks Barclays Capital U.S. 1-5 Year Corporate Index. Slightly different, but close enough. Both hold investment grade corporate bonds. State Street’s is slightly cheaper with an ER of 0.12% and Vanguard’s VCSH has an expense ratio of 0.15%. Though both are relatively new ETFs with an inception date that’s just about a month apart, VCSH has a market cap of $2B whereas SCPB tops off at $393M.

Sector: Financials (VFH vs. FFL)
And finally, Focus Morningstar’s Financial Services ETF FFL, manages to beat its Vanguard counterpart VFH with an expense ratio of 0.19% against 0.23% for VFH. Vanguard’s VFH is more diversified with a composition of 513 stocks against just 199 stocks making up FFL.

One more investment company will be joining the ETF market with its own ETFs – Fidelity. Recently, Fidelity filed with the SEC to go beyond the lone ETF it offers now – Fidelity Nasdaq Composite Index (ONEQ). Though Fidelity has been offering select iShares ETFs commission-free, these ETFs are not as aggressively priced as Vanguard’s.

With competition heating up, investors now have more low cost choices than ever before.

“In the long run it’s something everybody will be doing because it reduces costs”

-John Bogle, on indexing

Disclosure
No positions in the funds mentioned above.

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17 thoughts on “10 ETFs Cheaper Than Their Vanguard Peers

  1. Thanks for sharing! Expense ratios can really take a big bite out of returns in the long run, so it’s important to pay close attention to them when making investment decisions.

  2. Yes, it is awesome that investing has changed now that many more people feel comfortable managing their own money. Vanguard has been a leader in index funds and ETFs for years. I’m happy some of the other companies are taking notice. This is another great resource you have created!

  3. I almost bought some Vanguard positions last year but decided against it due to exactly what you’re talking about. There are so many ETFs out there now that doing a little research can really pay off and get you better value and performance! -Sydney

  4. There’s more to it than just expense ratios. There’s liquidity, the size of the ETFs, the spreads, and that burning question of how closely does the ETF actually track the index it is supposed to mirror. With the new abundance of ETFs, expect more tracking errors. I’ll stick with Vanguard.

  5. Good overview on ETFs available in different asset classes. I like to use commission free ETFs when possible because it enables fine tuning when rebalancing. Biz of Life (aka “The Grouch”)makes a good point. Expense ratios to me are a starting point. Be sure to check the bid-ask spread before transacting and (if it makes a difference) whether the fund is at a premium or a discount.

  6. Good post. I have VB and hopefully Vanguard will lower their expense ratio to compete. If they don’t, I will have to consider the competitions.

  7. Sadly I neither have the Vanguard products or the competitor products. need to have a serious look now. I am now interested in having an exposure to corporate bonds. Will take a serious look in to both the competitors.

  8. It’s only getting better with those fees, I love competition :)

  9. Vanguard rocks! The pioneer of low cost index funds continues to innovate and offer phenomenal value for investors. Nice overview MC.

  10. Guess the competition is paying attention and taking it to Vanguard. Wonder how they will respond to the challenge. Great break down MC!

  11. It’s great how competition drives prices down. Nice article MC.

  12. Cool list! I’m often lazy and just make the assumption that Vanguard is hands-down the cheapest in each sector, but they’re not!

  13. Vanguard pioneered index funds. And index funds still outperform over 80% of actively managed funds.

    Shilpan

  14. Hi MoneyCone,

    Good article. Lowering investment costs is the most effective tool individuals have.

    Vanguard, Fidelity, and Schwab offer low cost funds and have the distribution power.

    Some caution may be in order regarding the Focus Morningstar funds. Scottrade acquired FocusShares and is offering some very low annual expense ratios. However, each of their funds held only a few millions in total portfolio assets. These funds must be heavily subsidized by Scottrade. They can only be sustained economically in the market without cost subsidies though a very substantial increase in investment assets. If Scottrade succeeds like Schwab did in building up assets in their low-cost funds, then they may get up to the necessary economies of scale.

  15. Great round-up! I will say that I’ve been very happy with the customer service I’ve gotten at Vanguard, and since I have Admiral shares in a few of the funds it’s just as cheap (or even cheaper) than the ETFs.

  16. This is a really good post. I am a complete Vanguard customer because 1) they were the leader in this area and 2) I like the efficiency of having things my ETFs in one place. I do agree that competition is good for the consumer and will ultimately bring down prices.

  17. I love the Schwab ETFs. I have a Schwab account and they trade commission free with the Schwab account. Thanks for all the comparisons.

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