16
•
Fund Family Shareholder Association
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)
Never Use a
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.
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
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.
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
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.
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
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
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
>
The crux of
the complaint:
Vanguard’s costs
are consistent with
competitors’, except
for taxes.
