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Rating:How Vanguard's ETF Fee Cuts Will Rock the Market Not Rated 0.0 Email Routing List Email & Route  Print Print
Thursday, October 04, 2012

How Vanguard's ETF Fee Cuts Will Rock the Market

News summary by MFWire's editors

Vanguard [profile] has answered Schwab's challenge with an ETF fee cut of its own. Let's explore the effects of this change.

For starters, the reliance on new, more-opaque indexes may pose greater risk, as well as leave investors in the dark, reports Reuters. If you remember, Vanguard switched the MSCI Emerging Markets Index for the FTSE Emerging Index as its benchmark provider for 22 index funds.

"These are brand-new indexes that are not battle-tested and they have some non-transparent rules in how they get constructed," Dave Nadig, director of research at IndexUniverse, told Reuters.

Meanwhile, six international stock funds will also use the less-pricey FTSE Group index. The repercussion of this, report Businessweek and Business Standard, will be that emerging markets fund PMs will have to sell South Korean (KOSPI) shares for six of Vanguard's equity funds.

According to Julie Andrews, FTSE director in Australia, PMs need to sell the stocks to follow the classification. She also notes that the transition is being implemented by Vanguard.

"It is our understanding that it will be managed gradually over time to minimize impact," she added.

For the extractions from KOSPI, expect greater flow into Brazil, South Africa and India, which will be the largest beneficiaries of this change, Business Standard reports.

The funds affected are Vanguard European Stock Index Fund, Vanguard Pacific Stock Index Fund, Vanguard Emerging Markets Stock Index Fund, Vanguard Total International Stock Index Fund, Vanguard Developed Markets Index Fund and the Vanguard Tax-Managed International Fund

Edited by: HFD

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