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landscape could change dramatically if Vanguard is forced at some point to raise fees to address costs it has hereto- fore avoided, consciously or not. With competition, particularly in the ETF space, often a matter of basis point dif- ferences between funds with identical

low, but it’s almost 50% higher than what U.S. investors pay. Vanguard’s ETF shares currently charge just 0.05% in expenses. Add on a basis point or two, and while still low, that would be closer to the iShares Core S&P 500 ETF’s 0.07% expense ratio or SPDR S&P 500 ETF’s current 0.0945%. On the managed front, the differ- ences are even starker. The Vanguard U.S. Opportunities Fund is managed in essentially the same style as the PRIMECAP or Capital Opportunity funds here in the U.S. The all-in expens- es for the overseas fund are 0.95% for the investor shares. Investor-share expenses for PRIMECAP and Capital Opportunity are, respectively, 0.45% and 0.48%. Obviously, there’s no way of knowing whether the differences in these expense ratios is related to actual costs and how much are related to the alleged “7.5% cost-plus” contractual obligation. But there are differences. I believe the crux of the whole com- plaint as far as its potential impact on the industry lies in the allegation that “Vanguard’s costs are, however, gener- ally quite consistent with its competi- tors’ costs, with the notable exception of Vanguard’s tax costs.” The fund industry’s competitive >

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The crux of the complaint: Vanguard’s costs are consistent with competitors’, except for taxes.

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benchmarks, the attack on Vanguard’s “at cost” expense regime is a serious one and must have competitors in a frenzy debating its merits and potential impact. All in, whether this lawsuit is legiti- mate or not, and whether Vanguard is forced to raise expenses for costs it hasn’t always accounted for, I believe the company will remain one of the low-cost leaders in the industry. However, a ruling against the complex would be a huge hit to the firm’s repu- tation as an investor advocate and ethi- cal leader. The story continues… n

DAN’S DO-IT-NOW ACTION RECOMMENDATIONS 4 With the end of quantitative easing in sight, it is only a matter of time before we see a higher fed funds rate—but don’t let the naysayers knock you off your long-term course. (See page 1) 4 Four managers may (or may not) be better than one active manager. But so far at Emerging Markets Select Stock , four teams have been better than one index. (See page 14) 4 Inversions are the rage and larger capital-gain distributions may be forthcoming as a result. If you’ve got a loss somewhere, it might be valuable to book it now. (See page 1)

Daniel P. Wiener is America’s leading expert on the Vanguard family of funds. He is founder of the Fund Family Shareholder Association and chairman and chief executive officer of Adviser Investments, LLC, a Newton, Massachusetts, investment advisory firm (800-492-6868). As

Jeffrey D. DeMaso, Editor/Director of Research, works directly with Dan Wiener researching and writing the multiple-award winning Independent Adviser for Vanguard Investors newsletter. He also leads the analyst team for Adviser Investments, LLC, helping to

editor of The Independent Adviser for Vanguard Investors , he is a five-time recipient of the Newsletter Publishers Foundation’s Editorial Excellence Award. He also edits the annual Independent Guide to the Vanguard Funds. Mr. Wiener is often quoted in the nation’s leading financial publications.

oversee $2.7 billion in assets. Jeff graduated magna cum laude from Tufts University with a B.A. in economics in 2006, holds the Chartered Financial Analyst designation and is a member of the CFA Institute and the Boston Security Analysts Society.

16 • Fund Family Shareholder Association

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