582 / 708
4
•
Fund Family Shareholder Association
www.adviseronline.comOf course, that 33% increase was
but a mere basis point, from 0.03%
to 0.04%, between June 30, 2015 and
December 31, 2015. But if you’ve
been reading Vanguard’s press releases,
you know that minuscule basis point
changes like these look a whole lot
bigger when translated into percent-
ages, so that’s how Vanguard portrays
them. Their latest press initiative cited
expense ratio reductions ranging from
7% to 27%.
Obviously, for expenses to have fall-
en overall in 2015, but to have risen in
the year’s final six months, expenses
fell more during the first six months of
2015 before they reversed course.
Over the last six months of 2015,
operating expense increases ranged
from 5% to 33%, though virtually all
of the changes were an increase of just
one basis point.
It’s always nice to see expenses fall,
but when you’re talking one or two
basis points on already-low expense
ratios, it gets harder and harder to
make any real news out of it. And it’s
no surprise that Vanguard would rath-
er promote expenses falling over 12
months than expenses rising over six.
Now, there’s something else you
need to know, and it’s important: When
Vanguard talks about lowering expense
ratios, it’s talking about lowering them
in its prospectuses. It will issue a
new prospectus for a fund, report a
lower expense ratio, and claim it as a
decrease. However, that’s not really
accurate. When Vanguard reports a
new expense ratio in a prospectus, it’s
an estimate. That’s right—it’s an edu-
cated guess.
Only twice a year does Vanguard
report actual, audited expense ratios
rather than estimates, and that’s in
each fund’s semiannual and annual
reports. If you read the letter to share-
holders in those reports, you’ll see
that Vanguard always compares its
funds’ expense ratios with their peers.
However, the expense ratios they use
for the comparisons aren’t accurate,
because they are taken from prospec-
tuses. Vanguard’s footnote tells the
tale: “The fund expense ratios shown
[in the table] are from the prospectus
dated [say, April 29, 2015] and rep-
resent estimated costs for the current
fiscal year.” The actual expense ratios
are listed in the footnotes, but also in
the financial statements deeper into
the report. You can find them in a table
headed “Financial Highlights.”
In fact, as we were finishing up
this letter, Vanguard released annual
reports for a number of funds whose
fiscal years end in January. I found it
fascinating that for
Precious Metals
When Expenses Rise
————— REPORTED OPERATING EXPENSES —————
12/31/14
6/30/15
Change
from Dec.
12/31/15
Change
from Jun.
Intermediate-Term Bond Index Inst. Plus 0.05% 0.03% -40% 0.04% 33%
Admiral 500 Index
0.05% 0.04% -20% 0.05% 25%
Admiral Total Stock Market Index
0.05% 0.04% -20% 0.05% 25%
S&P 500 ETF
0.05% 0.04% -20% 0.05% 25%
Total Stock Market ETF
0.05% 0.04% -20% 0.05% 25%
MidCap Index Inst. Plus
0.06% 0.04% -33% 0.05% 25%
SmallCap Index Inst. Plus
0.06% 0.04% -33% 0.05% 25%
Intermediate-Term Bond Index Inst.
0.07% 0.05% -29% 0.06% 20%
Short-Term Bond Index Institutional
0.07% 0.05% -29% 0.06% 20%
Balanced Index Inst.
0.08% 0.06% -25% 0.07% 17%
Extended Market Inst.
0.08% 0.06% -25% 0.07% 17%
Growth Index Inst.
0.08% 0.06% -25% 0.07% 17%
LargeCap Index Inst.
0.08% 0.06% -25% 0.07% 17%
MidCap Index Inst.
0.08% 0.06% -25% 0.07% 17%
SmallCap Index Inst.
0.08% 0.06% -25% 0.07% 17%
Tax-Managed Cap. Apprec. Inst.
0.08% 0.06% -25% 0.07% 17%
Value Index Inst.
0.08% 0.06% -25% 0.07% 17%
Tax-Managed SmallCap Index Inst.
0.08% 0.06% -21% 0.07% 16%
Admiral SmallCap Index
0.09% 0.07% -22% 0.08% 14%
Admiral Growth Index
0.09% 0.07% -22% 0.08% 14%
Admiral MidCap Growth Index
0.09% 0.07% -22% 0.08% 14%
Admiral MidCap Index
0.09% 0.07% -22% 0.08% 14%
Admiral MidCap Value Index
0.09% 0.07% -22% 0.08% 14%
Admiral LargeCap Index
0.09% 0.07% -22% 0.08% 14%
Admiral Value Index
0.09% 0.07% -22% 0.08% 14%
Admiral Balanced Index
0.09% 0.07% -22% 0.08% 14%
SmallCap ETF
0.09% 0.07% -22% 0.08% 14%
Growth ETF
0.09% 0.07% -22% 0.08% 14%
MidCap Growth ETF
0.09% 0.07% -22% 0.08% 14%
MidCap ETF
0.09% 0.07% -22% 0.08% 14%
MidCap Value ETF
0.09% 0.07% -22% 0.08% 14%
LargeCap ETF
0.09% 0.07% -22% 0.08% 14%
Value ETF
0.09% 0.07% -22% 0.08% 14%
Admiral Extended Mkt. Index
0.10% 0.08% -20% 0.09% 13%
Admiral Short-Term Bond Index
0.10% 0.08% -20% 0.09% 13%
Admiral Intermed.-Term Bond Index
0.10% 0.08% -20% 0.09% 13%
Extended Market ETF
0.10% 0.08% -20% 0.09% 13%
Short-Term Bond ETF
0.10% 0.08% -20% 0.09% 13%
Intermediate-Term Bond ETF
0.10% 0.08% -20% 0.09% 13%
Long-Term Bond ETF
0.10% 0.08% -20% 0.09% 13%
Admiral Inflation-Protected Sec.
0.10% 0.09% -10% 0.10% 11%
Tax-Managed Balanced
0.12% 0.10% -17% 0.11% 10%
Tax-Managed SmallCap
0.12% 0.10% -17% 0.11% 10%
Tax-Managed Capital Appreciation
0.12% 0.10% -17% 0.11% 10%
500 Index
0.17% 0.15% -12% 0.16% 7%
Total Stock Market Index
0.17% 0.15% -12% 0.16% 7%
SmallCap Growth Index
0.23% 0.19% -17% 0.20% 5%
Inflation-Protected Securities
0.20% 0.19% -5% 0.20% 5%
Extended Market Index
0.23% 0.21% -9% 0.22% 5%
Growth Index
0.23% 0.21% -9% 0.22% 5%
Value Index
0.23% 0.21% -9% 0.22% 5%
Balanced Index
0.23% 0.21% -9% 0.22% 5%
Source: Vanguard semiannual and annual reports.
COSTS
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