Difference in ERs between Vanguard's Funds vs ETFs

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bargainhuntingking
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Difference in ERs between Vanguard's Funds vs ETFs

Post by bargainhuntingking » Tue Oct 24, 2017 4:07 pm

Just noticed a 13 basis point difference in ERs between Vanguard's Small Cap International Mutual Fund (VFSVX 0.27) and EFT (VSS 0.13).

In general, how long does it take for fund volume to catch up and offset expenses so that these ERs so they are closer? The market cap of both of these are similar ~$5.4B. I'm surprised at the ER difference here, but perhaps it's because the fund only has investor shares at this time?

mervinj7
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Re: Difference in ERs between Vanguard's Funds vs ETFs

Post by mervinj7 » Tue Oct 24, 2017 4:16 pm

bargainhuntingking wrote:
Tue Oct 24, 2017 4:07 pm
Just noticed a 13 basis point difference in ERs between Vanguard's Small Cap International Mutual Fund (VFSVX 0.27) and EFT (VSS 0.13).

In general, how long does it take for fund volume to catch up and offset expenses so that these ERs so they are closer? The market cap of both of these are similar ~$5.4B. I'm surprised at the ER difference here, but perhaps it's because the fund only has investor shares at this time?
I can't answer your question about the ER differences but regarding the market caps of the two funds, they should be exactly the same since the ETF (VSS) and mutual fund (VFSVX) are just two share classes of the same fund. In case you were curious, of the $5.4B in assets, $4.4B is held in the ETF share class, so its currently far more popular than the investor share class.
https://advisors.vanguard.com/iwe/pdf/s ... eTrans.pdf

alex_686
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Re: Difference in ERs between Vanguard's Funds vs ETFs

Post by alex_686 » Tue Oct 24, 2017 4:31 pm

Why would it be the same? VFSVX is an investor class and the investor class has a higher cost structure. ETFs have a lower expense ratio because they have a lower cost structure. Parts of the back office expenses can be offloaded into the market.

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oneleaf
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Re: Difference in ERs between Vanguard's Funds vs ETFs

Post by oneleaf » Tue Oct 24, 2017 5:10 pm

bargainhuntingking wrote:
Tue Oct 24, 2017 4:07 pm
Just noticed a 13 basis point difference in ERs between Vanguard's Small Cap International Mutual Fund (VFSVX 0.27) and EFT (VSS 0.13).

In general, how long does it take for fund volume to catch up and offset expenses so that these ERs so they are closer? The market cap of both of these are similar ~$5.4B. I'm surprised at the ER difference here, but perhaps it's because the fund only has investor shares at this time?
With no exceptions that I know offhand, ALL Admiral share class index funds have the same ER as the corresponding ETF.

So until/if VFSVX has an admiral share class, expect the difference in ER between the Investor class and ETF not to change much.

Personally, I am in VFSVX with a substantial position (way past the normal Admiral threshold), but I hold it anyway, because I hate mixing ETF's and mutual funds within the same account, and the account it is in is currently all mutual/index funds.

tibbitts
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Re: Difference in ERs between Vanguard's Funds vs ETFs

Post by tibbitts » Tue Oct 24, 2017 5:13 pm

The unpredictability of when a fund will get admiral shares is annoying - there seems to be no pattern.

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oneleaf
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Re: Difference in ERs between Vanguard's Funds vs ETFs

Post by oneleaf » Tue Oct 24, 2017 5:15 pm

tibbitts wrote:
Tue Oct 24, 2017 5:13 pm
The unpredictability of when a fund will get admiral shares is annoying - there seems to be no pattern.
I know. I feel like VFSVX (Ex-US Small) should have one by now. Been holding the investor shares since inception. :?

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triceratop
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Re: Difference in ERs between Vanguard's Funds vs ETFs

Post by triceratop » Tue Oct 24, 2017 5:52 pm

oneleaf wrote:
Tue Oct 24, 2017 5:15 pm
tibbitts wrote:
Tue Oct 24, 2017 5:13 pm
The unpredictability of when a fund will get admiral shares is annoying - there seems to be no pattern.
I know. I feel like VFSVX (Ex-US Small) should have one by now. Been holding the investor shares since inception. :?
I called them a while (a year, I think?) ago and they said there were no plans in the near to intermediate-term to introduce an admiral shares share class.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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TD2626
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Re: Difference in ERs between Vanguard's Funds vs ETFs

Post by TD2626 » Tue Oct 24, 2017 7:46 pm

triceratop wrote:
Tue Oct 24, 2017 5:52 pm
oneleaf wrote:
Tue Oct 24, 2017 5:15 pm
tibbitts wrote:
Tue Oct 24, 2017 5:13 pm
The unpredictability of when a fund will get admiral shares is annoying - there seems to be no pattern.
I know. I feel like VFSVX (Ex-US Small) should have one by now. Been holding the investor shares since inception. :?
I called them a while (a year, I think?) ago and they said there were no plans in the near to intermediate-term to introduce an admiral shares share class.
Yeah - I wish there was some guidance on this. I'm wishing Total World Admiral existed.

The issue of investors considering etf shares vs investor shares when admiral doesn't exist is a thorny one. If an investor would prefer mutual fund shares instead of ETFs - given the fact that (as far as I know), with some exceptions (in bond funds), investor shares can be converted into Admiral or ETF shares without capital gains in taxable, but ETFs can't be converted to Admiral shares without a taxable event.

Mabye in some situations the investor would go with the investor shares option, hoping that admiral comes about eventually. It's a risk, though, as the investor class is more costly than the ETF and Vangaurd may never make the desired admiral shares.

(Source on share class conversions: https://investor.vanguard.com/etf/faqs)

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oneleaf
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Re: Difference in ERs between Vanguard's Funds vs ETFs

Post by oneleaf » Tue Oct 24, 2017 7:54 pm

TD2626 wrote:
Tue Oct 24, 2017 7:46 pm
Yeah - I wish there was some guidance on this. I'm wishing Total World Admiral existed.

The issue of investors considering etf shares vs investor shares when admiral doesn't exist is a thorny one. If an investor would prefer mutual fund shares instead of ETFs - given the fact that (as far as I know), with some exceptions (in bond funds), investor shares can be converted into Admiral or ETF shares without capital gains in taxable, but ETFs can't be converted to Admiral shares without a taxable event.

Mabye in some situations the investor would go with the investor shares option, hoping that admiral comes about eventually. It's a risk, though, as the investor class is more costly than the ETF and Vangaurd may never make the desired admiral shares.

(Source on share class conversions: https://investor.vanguard.com/etf/faqs)
Yea I am paying over $50 in fees per year to stay in Investor class vs the ETF. It is almost enough to bother me. I actually own plenty of ETF's, but I try my best not to mix within an account. Rebalancing with mutual funds is super easy. Rebalancing with ETF's is easy enough. Rebalancing with a mixture of them involves juggling unsettled money and clicking through warning messages. Since my VFSVX holdings are stuck in an account with all mutual funds, I really do not want to convert it.

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TD2626
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Re: Difference in ERs between Vanguard's Funds vs ETFs

Post by TD2626 » Tue Oct 24, 2017 8:12 pm

oneleaf wrote:
Tue Oct 24, 2017 7:54 pm
TD2626 wrote:
Tue Oct 24, 2017 7:46 pm
Yeah - I wish there was some guidance on this. I'm wishing Total World Admiral existed.

The issue of investors considering etf shares vs investor shares when admiral doesn't exist is a thorny one. If an investor would prefer mutual fund shares instead of ETFs - given the fact that (as far as I know), with some exceptions (in bond funds), investor shares can be converted into Admiral or ETF shares without capital gains in taxable, but ETFs can't be converted to Admiral shares without a taxable event.

Mabye in some situations the investor would go with the investor shares option, hoping that admiral comes about eventually. It's a risk, though, as the investor class is more costly than the ETF and Vangaurd may never make the desired admiral shares.

(Source on share class conversions: https://investor.vanguard.com/etf/faqs)
Yea I am paying over $50 in fees per year to stay in Investor class vs the ETF. It is almost enough to bother me. I actually own plenty of ETF's, but I try my best not to mix within an account. Rebalancing with mutual funds is super easy. Rebalancing with ETF's is easy enough. Rebalancing with a mixture of them involves juggling unsettled money and clicking through warning messages. Since my VFSVX holdings are stuck in an account with all mutual funds, I really do not want to convert it.
It's good that you did this sort of calculation (to find the $50/year cost). Someone in this situation aught to do the math and know what the excess costs of their Investor shares are. Of course, if someone had a portfolio that was a lot larger, and the cost was $500 a year instead of $50 a year, maybe this would push the decision toward using the ETF? This might be the case with Total World, which someone might be more likely to use as a core fund for much of their portfolio. For International Small caps, where most would probably have a smaller allocation, the difference might not be as much on a dollar basis (but still large on a percentage basis).

Oh, and the cruel irony of the situation is that it's possible that as soon as one is fed up enough with the excess cost to convert from Investor Shares to ETF shares, they'll come out with the'll come out with the Admiral shares. This might be where and IPS (investment policy statement) that spells out ahead of time what one would do could come in handy.

bargainhuntingking
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Re: Difference in ERs between Vanguard's Funds vs ETFs

Post by bargainhuntingking » Wed Oct 25, 2017 12:38 pm

Good responses here. Thanks. Yes, I keep VFSVX in a Vanguard Roth, with other funds. All the other funds have admiral shares with ERs that equal their respective ETF counterparts. I just noticed that the VFSVX vs VSS expense ratio difference was an anomaly. I'm not yet ready to switch to the ETF yet, but perhaps at some point when convenience factor is outweighed by the price, perhaps I may.
Last edited by bargainhuntingking on Wed Oct 25, 2017 1:23 pm, edited 1 time in total.

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jhfenton
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Re: Difference in ERs between Vanguard's Funds vs ETFs

Post by jhfenton » Wed Oct 25, 2017 1:20 pm

I own both VSS and VFSVX, but I hold far more in VSS because of the lower expenses. But, because VSS nearly always trades at a substantial premium, I almost always buy VFSVX. Periodically, I call and convert most of the VFSVX to VSS. (I save a bit of the VFSVX, so I can continue with periodic monthly contributions without having to restart at $3,000.) If I need to sell to rebalance, I almost always sell VSS.

I prefer traditional mutual fund shares in general, and, other than VSS, I own all Admiral Shares in tax-advantaged accounts. (I use ETFs in taxable.) But it would cost me a few hundred dollars per year in incremental expenses to hold everything in VFSVX. I will do a small dance if they ever add Admiral Shares for ex-US Small Cap.

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Re: Difference in ERs between Vanguard's Funds vs ETFs

Post by Majormajor78 » Wed Oct 25, 2017 2:30 pm

I also own both VSS and VFSVX in differnt accounts.

I've always assumed that the growth of ETF's at Vanguard has hindered the growth of the assets held in the mutual funds themselves. Not stopped of course, just hindered. It's ironic that if the ETF didn't exist the mutual fund would have much more assets under management and quite possibly offer admiral shares by now and costs would be lower on the mutual side at least. Now that you can reinvest dividends into fractional shares, owning the ETF's isn't much less convenient than the mutual fund but it really used to chap my backside.

You just need to look at this thread and see the responses of people choosing the ETF over the traditional fund. Who knows when the fund class will get large enough to justify splitting off an admiral class.
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oneleaf
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Re: Difference in ERs between Vanguard's Funds vs ETFs

Post by oneleaf » Wed Oct 25, 2017 3:18 pm

Majormajor78 wrote:
Wed Oct 25, 2017 2:30 pm
I also own both VSS and VFSVX in differnt accounts.

I've always assumed that the growth of ETF's at Vanguard has hindered the growth of the assets held in the mutual funds themselves. Not stopped of course, just hindered. It's ironic that if the ETF didn't exist the mutual fund would have much more assets under management and quite possibly offer admiral shares by now and costs would be lower on the mutual side at least. Now that you can reinvest dividends into fractional shares, owning the ETF's isn't much less convenient than the mutual fund but it really used to chap my backside.

You just need to look at this thread and see the responses of people choosing the ETF over the traditional fund. Who knows when the fund class will get large enough to justify splitting off an admiral class.
Yep, I feel the same way. The lack of admiral shares pushing people to ETF's is the reason the investor share class has not grown enough to justify admiral shares. :oops:

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