Vanguard Ratchets Down ETF Fees, Offering Cheapest Bond Fund

(Bloomberg) -- Vanguard Group, the second-largest issuer of exchange-traded funds, escalated an industry price competition by lowering fees on three of its popular products.

The asset manager will reduce fees on its Vanguard Total Bond Market ETF, making it the cheapest U.S. bond fund, according to regulatory filings. The firm also plans to cut costs on the Vanguard S&P 500 ETF, dropping them below offerings by BlackRock Inc. and State Street Corp. that track the same index. And the company is pushing down fees on its Vanguard Total Stock Market ETF.

The development is part of an intensifying price war in ETFs and focuses more attention on the specter of zero-fee funds in the industry. Social Finance Inc., the online lender known as SoFi, said Monday it will help start two ETFs that won’t charge any management fee for at least the first year.

Vanguard, which isn’t publicly traded, has been one of the driving forces in the industrywide competition over prices. BlackRock is largest provider of ETFs.

“These Vanguard products are already extremely popular and investors are only more likely to gravitate toward them as they focus more (too much in my view) on fees,” Todd Rosenbluth, director of ETF Research at CFRA Research, wrote in a note.

Vanguard Total Bond Market ETF will change its expense ratio to .035 percent, according to the filings. That makes it cheaper than comparable funds: SPDR Portfolio Aggregate Bond ETF carries an expense ratio of .04 percent, and iShares Core U.S. Aggregate Bond ETF maintains an expense ratio of .05 percent.

Vanguard S&P 500 ETF will have an expense ratio of .03 percent, making it cheaper than iShares Core S&P 500 ETF and well below SPDR S&P 500 ETF Trust. Vanguard Total Stock Market ETF will also lower its expense ratio to .03 percent.

--With assistance from Rachel Evans.

To contact the reporter on this story: Annie Massa in New York at amassa12@bloomberg.net

To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Vincent Bielski

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