Vanguard goes on offensive in European fund price war
Asset manager seeks to undermine rivals with fee cuts on 46 products
Vanguard has fired a broadside at rival asset managers throughout Europe by escalating the price war raging across the European investment fund market.
Fees have been cut on 46 Vanguard funds, just under half of its European fund range, in a move that threatens the profits of competitors.
“Investors have been poorly served with high-cost, complex investments for too long. Every pound paid in fees is a pound from investors’ returns,” said Sean Hagerty, head of Vanguard for Europe.
Pennsylvania-based Vanguard has established a reputation as a fearsome price competitor, undercutting rivals’ fees to win new business. It arrived in the UK in 2009 with a long-term plan to disrupt the European fund market by importing the cut-throat price competition that has fuelled its US growth.
Championing low-cost passive index funds that track broad market benchmarks has helped Vanguard expand into the second-largest asset manager with $5.7tn in assets, behind BlackRock which controls almost $7tn.
Fees on 13 Vanguard exchange traded funds available to UK retail investors have been cut by between 2 and 7 basis points. Twenty-two index tracking mutual funds available in the UK have seen fees reduced by between 1bp and as much as 18bp.
Investors can now buy exposure to the UK government bond market for as little as 7bp annually or track returns from global stock markets for just 22bp a year.
Vanguard’s index mutual fund range in the UK will now carry an average charge figure of 0.15 per cent (or 15bp) annually while the charge figure across the index ETF line-up averages 0.1 per cent (or 10bp).
The latest reductions follow Vanguard’s decision in June to cut fees across its UK-domiciled active funds, marking the third anniversary of the product range. Price reductions have also been announced for Vanguard funds sold in Germany, France, Italy, Switzerland and the Netherlands.
Investors have ploughed $2.6bn in new cash in the first nine months of this year into Vanguard’s European ETF range, down 43 per cent on the same period in 2018, according to ETFGI, a data provider.
“Some European fund platforms remain reluctant to embrace ETFs which may have slowed adoption among financial advisers and retail investors,” said Deborah Fuhr, co-founder of ETFGI.
Mr Hagerty said ETFs would become widely used as core building blocks in retail investors’ portfolios across Europe, following the pattern established in the US.
“Regulations, such as the introduction of the Mifid II rules are improving transparency over fees and helping to drive the adoption of tracker funds and ETFs,” he said.
The price war across Europe’s investment industry is accelerating, driven by the switch into lower-cost funds by investors and the introduction of new cheaper products by asset managers.
Fees on equity funds, measured on an asset-weighted basis that takes account of the size of a fund, dropped from 1.49 per cent in 2013 to 1.29 per cent last year, according to an analysis by ICI Global, a trade body.
“More needs to be done to reduce fees or the fund industry risks bringing only disappointment to an entire generation of investors across Europe,” said Mr Hagerty.