Vanguard Long Term Bond Index to charge 0.50% fee on purchases

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MFInvestor
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Vanguard Long Term Bond Index to charge 0.50% fee on purchases

Post by MFInvestor » Tue May 14, 2019 4:30 pm

The following is from the Prospectus supplement dated 5/10/2019 for Vanguard Long Term Bond Index Fund

"Effective July 10, 2019, the Fund will charge a 0.50% fee on all purchases of its Investor Shares and Admiral Shares, …"

Doesn't apply to ETF shares

This is a hefty fee when you consider that the expense ratio of the Admiral and ETF shares is currently on 0.07%.

New purchase fee would be 7x annual expense ratio.
(The Investor shares for this fund are going away and merged into Admiral shares)

Why would anyone be encouraged to by Admiral shares versus ETF when the fee applies to Admiral shares but not ETF.

This seems to be a strong statement that Vanguard is encouraging the purchase of ETF's versus Mutual Fund shares


Currently this fund has $11 billion in assets of which $3 billion are in ETF.



From the Prospectus Supplement:

https://personal.vanguard.com/pub/Pdf/p ... 2210152329

Vanguard Long-Term Bond Index Fund

Supplement Dated May 10, 2019, to the Prospectus and Summary Prospectus for Investor Shares and Admiral™ Shares Dated April 26, 2019
Effective July 10, 2019, the Fund will charge a 0.50% fee on all purchases of its Investor Shares and Admiral Shares, including shares that you purchase by exchange from another Vanguard fund. Purchases that result from reinvested dividend or capital gains distributions are not subject to the purchase fee.

Unlike a sales charge or a load paid to a broker or a fund management company, purchase fees are paid directly to the Fund to offset the costs of buying securities. This fee is separate from, and in addition to, other expenses charged by the Fund.

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Re: Vanguard Long Term Bond Index to charge 0.50 fee on purchases

Post by jeffyscott » Tue May 14, 2019 4:54 pm

Since only the mutual fund charges the fee, do the proceeds go only to the mutual fund shareholders?
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Re: Vanguard Long Term Bond Index to charge 0.50 fee on purchases

Post by 272 Sheep » Tue May 14, 2019 5:05 pm

Thanks anyway but have no need of Long-term bond fund whether it be MF or ETF.
If I was, it would be the ETF.
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Re: Vanguard Long Term Bond Index to charge 0.50% fee on purchases

Post by columbia » Tue May 14, 2019 5:14 pm

Trying to force illiquidity isn’t very enticing.

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Re: Vanguard Long Term Bond Index to charge 0.50% fee on purchases

Post by rkhusky » Tue May 14, 2019 5:16 pm

Other funds have purchase fees, e.g. Int Corp Bond, which don't have anything to do with ETF's. Vanguard uses the fees to reduce frequent buying and selling of the fund and to compensate long term holders when frequent buying/selling occurs.

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Re: Vanguard Long Term Bond Index to charge 0.50 fee on purchases

Post by vineviz » Tue May 14, 2019 5:27 pm

jeffyscott wrote:
Tue May 14, 2019 4:54 pm
Since only the mutual fund charges the fee, do the proceeds go only to the mutual fund shareholders?
Yes.

In a mutual fund, unlike an ETF, the trading costs associated with investor turnover are born all all existing shareholders and not just those doing the buying and selling. Fees like this are meant to ensure that existing shareholders are not adversely impacted by frequent traders.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Vanguard Long Term Bond Index to charge 0.50% fee on purchases

Post by fortyofforty » Tue May 14, 2019 6:52 pm

I don't like these "nickel and dime" fees Vanguard sometimes charges for normal activity. If you don't want frequent trading, take action against frequent trading. Instead, everyone who purchases the fund is punished. Vanguard shouldn't be so quick to brag about low expense ratios if there are .25 or .50 fees associated with buying or selling. It does remind me of those dreadful "loads" we had to navigate back in the 1980s, no matter Vanguard's claims to the contrary.
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Re: Vanguard Long Term Bond Index to charge 0.50 fee on purchases

Post by alex_686 » Tue May 14, 2019 6:57 pm

vineviz wrote:
Tue May 14, 2019 5:27 pm
jeffyscott wrote:
Tue May 14, 2019 4:54 pm
Since only the mutual fund charges the fee, do the proceeds go only to the mutual fund shareholders?
Yes.

In a mutual fund, unlike an ETF, the trading costs associated with investor turnover are born all all existing shareholders and not just those doing the buying and selling. Fees like this are meant to ensure that existing shareholders are not adversely impacted by frequent traders.
Yeah, this is true but a bit off. The fees go to the management firm, not to the mutual fund / owners of that fund. I would hope management would use those fees to lower some of those fees but that can be tricky.

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Re: Vanguard Long Term Bond Index to charge 0.50 fee on purchases

Post by vineviz » Tue May 14, 2019 7:00 pm

alex_686 wrote:
Tue May 14, 2019 6:57 pm
vineviz wrote:
Tue May 14, 2019 5:27 pm
jeffyscott wrote:
Tue May 14, 2019 4:54 pm
Since only the mutual fund charges the fee, do the proceeds go only to the mutual fund shareholders?
Yes.

In a mutual fund, unlike an ETF, the trading costs associated with investor turnover are born all all existing shareholders and not just those doing the buying and selling. Fees like this are meant to ensure that existing shareholders are not adversely impacted by frequent traders.
Yeah, this is true but a bit off. The fees go to the management firm, not to the mutual fund / owners of that fund. I would hope management would use those fees to lower some of those fees but that can be tricky.
No, purchase fees are paid directly to the fund and not to the manager. It’s not like a sales load.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Vanguard Long Term Bond Index to charge 0.50% fee on purchases

Post by vineviz » Tue May 14, 2019 7:05 pm

fortyofforty wrote:
Tue May 14, 2019 6:52 pm
I don't like these "nickel and dime" fees Vanguard sometimes charges for normal activity. If you don't want frequent trading, take action against frequent trading. Instead, everyone who purchases the fund is punished. Vanguard shouldn't be so quick to brag about low expense ratios if there are .25 or .50 fees associated with buying or selling. It does remind me of those dreadful "loads" we had to navigate back in the 1980s, no matter Vanguard's claims to the contrary.
The “normal” activity associated with a long-term bond fund is to buy and hold it for 10+ years. For investors who do that, this fee is an insignificant feature.

And remember that it is very unlike a sales load in that the fee that you pay goes directions into the fund you own. A sales load pays your broker, whereas this fee pays you.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Vanguard Long Term Bond Index to charge 0.50 fee on purchases

Post by Explorer » Tue May 14, 2019 7:12 pm

vineviz wrote:
Tue May 14, 2019 5:27 pm
jeffyscott wrote:
Tue May 14, 2019 4:54 pm
Since only the mutual fund charges the fee, do the proceeds go only to the mutual fund shareholders?
Yes.

In a mutual fund, unlike an ETF, the trading costs associated with investor turnover are born all all existing shareholders and not just those doing the buying and selling. Fees like this are meant to ensure that existing shareholders are not adversely impacted by frequent traders.
Once you sell a mutual fund, VG won't let you buy back for 30 days... how can frequent trading occur?

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Re: Vanguard Long Term Bond Index to charge 0.50% fee on purchases

Post by whodidntante » Tue May 14, 2019 7:22 pm

Yet another reason to use ETFs.

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Re: Vanguard Long Term Bond Index to charge 0.50% fee on purchases

Post by fortyofforty » Tue May 14, 2019 7:33 pm

vineviz wrote:
Tue May 14, 2019 7:05 pm
fortyofforty wrote:
Tue May 14, 2019 6:52 pm
I don't like these "nickel and dime" fees Vanguard sometimes charges for normal activity. If you don't want frequent trading, take action against frequent trading. Instead, everyone who purchases the fund is punished. Vanguard shouldn't be so quick to brag about low expense ratios if there are .25 or .50 fees associated with buying or selling. It does remind me of those dreadful "loads" we had to navigate back in the 1980s, no matter Vanguard's claims to the contrary.
The “normal” activity associated with a long-term bond fund is to buy and hold it for 10+ years. For investors who do that, this fee is an insignificant feature.

And remember that it is very unlike a sales load in that the fee that you pay goes directions into the fund you own. A sales load pays your broker, whereas this fee pays you.
The person engaging in "normal" activity is still hit with this levy. It is not reduced over time, nor waived for long term investors.

A purchase fee reduces my investable assets by exactly the amount of the fee (just like the old "front end loads" used to).

And a redemption fee does not go into my pocket. It doesn't pay me at all. Nope. It pays those who remain behind, and the Vanguard enterprise.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

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Re: Vanguard Long Term Bond Index to charge 0.50 fee on purchases

Post by vineviz » Tue May 14, 2019 7:37 pm

Explorer wrote:
Tue May 14, 2019 7:12 pm
vineviz wrote:
Tue May 14, 2019 5:27 pm
jeffyscott wrote:
Tue May 14, 2019 4:54 pm
Since only the mutual fund charges the fee, do the proceeds go only to the mutual fund shareholders?
Yes.

In a mutual fund, unlike an ETF, the trading costs associated with investor turnover are born all all existing shareholders and not just those doing the buying and selling. Fees like this are meant to ensure that existing shareholders are not adversely impacted by frequent traders.
Once you sell a mutual fund, VG won't let you buy back for 30 days... how can frequent trading occur?
If enough large investors are rotating in and out of a fund even 6-8 times a year it can have a significant impact on trading costs.

Fund companies don’t institute fees like this unless they see a significant problem over a protracted period of time.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Vanguard Long Term Bond Index to charge 0.50% fee on purchases

Post by vineviz » Tue May 14, 2019 7:42 pm

fortyofforty wrote:
Tue May 14, 2019 7:33 pm
vineviz wrote:
Tue May 14, 2019 7:05 pm
fortyofforty wrote:
Tue May 14, 2019 6:52 pm
I don't like these "nickel and dime" fees Vanguard sometimes charges for normal activity. If you don't want frequent trading, take action against frequent trading. Instead, everyone who purchases the fund is punished. Vanguard shouldn't be so quick to brag about low expense ratios if there are .25 or .50 fees associated with buying or selling. It does remind me of those dreadful "loads" we had to navigate back in the 1980s, no matter Vanguard's claims to the contrary.
The “normal” activity associated with a long-term bond fund is to buy and hold it for 10+ years. For investors who do that, this fee is an insignificant feature.

And remember that it is very unlike a sales load in that the fee that you pay goes directions into the fund you own. A sales load pays your broker, whereas this fee pays you.
The person engaging in "normal" activity is still hit with this levy. It is not reduced over time, nor waived for long term investors.

A purchase fee reduces my investable assets by exactly the amount of the fee (just like the old "front end loads" used to).

And a redemption fee does not go into my pocket. It doesn't pay me at all. Nope. It pays those who remain behind, and the Vanguard enterprise.
I don’t think you are grasping how a fee like this works.

This isn’t a redemption fee, for one thing. It’s a purchase fee, so your fee goes into the NAV you own.

Even if it WAS a redemption fee, it still benefits you. It’s a mutual fund, remember: emphasis on “mutual”. Fees like this ensure the costs associated with buying and sells the underlyin securities are paid by the people generating the expense. What could be more fair than that?
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Vanguard Long Term Bond Index to charge 0.50% fee on purchases

Post by jeffyscott » Tue May 14, 2019 7:47 pm

whodidntante wrote:
Tue May 14, 2019 7:22 pm
Yet another reason to use ETFs.
I'd avoid the fee and the ETF by doing something like buy long term investment grade fund and long term treasury fund (or just long term treasuries). But then, besides being an ETF avoider, I'm not a fan of bond index funds, anyway.

No interest :mrgreen: in long term bonds at this time, though.
Time is your friend; impulse is your enemy. - John C. Bogle

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Re: Vanguard Long Term Bond Index to charge 0.50% fee on purchases

Post by fortyofforty » Tue May 14, 2019 8:22 pm

vineviz wrote:
Tue May 14, 2019 7:42 pm
fortyofforty wrote:
Tue May 14, 2019 7:33 pm
vineviz wrote:
Tue May 14, 2019 7:05 pm
fortyofforty wrote:
Tue May 14, 2019 6:52 pm
I don't like these "nickel and dime" fees Vanguard sometimes charges for normal activity. If you don't want frequent trading, take action against frequent trading. Instead, everyone who purchases the fund is punished. Vanguard shouldn't be so quick to brag about low expense ratios if there are .25 or .50 fees associated with buying or selling. It does remind me of those dreadful "loads" we had to navigate back in the 1980s, no matter Vanguard's claims to the contrary.
The “normal” activity associated with a long-term bond fund is to buy and hold it for 10+ years. For investors who do that, this fee is an insignificant feature.

And remember that it is very unlike a sales load in that the fee that you pay goes directions into the fund you own. A sales load pays your broker, whereas this fee pays you.
The person engaging in "normal" activity is still hit with this levy. It is not reduced over time, nor waived for long term investors.

A purchase fee reduces my investable assets by exactly the amount of the fee (just like the old "front end loads" used to).

And a redemption fee does not go into my pocket. It doesn't pay me at all. Nope. It pays those who remain behind, and the Vanguard enterprise.
I don’t think you are grasping how a fee like this works.

This isn’t a redemption fee, for one thing. It’s a purchase fee, so your fee goes into the NAV you own.

Even if it WAS a redemption fee, it still benefits you. It’s a mutual fund, remember: emphasis on “mutual”. Fees like this ensure the costs associated with buying and sells the underlyin securities are paid by the people generating the expense. What could be more fair than that?
I used the examples of purchase fees and redemption fees (both of which have been levied). I don't know if you grasp that fact or not.

A redemption fee paid by someone else does benefit me if I stay behind. I don't see how my own redemption fee I would pay benefits me as I go out the door. If such fees are so fair, why doesn't Vanguard levy them on ALL mutual funds? What could be more fair than that?
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Re: Vanguard Long Term Bond Index to charge 0.50% fee on purchases

Post by averagedude » Tue May 14, 2019 8:29 pm

Could be wrong, but if you plan on holding this investment for 20+ years, you should profit from this fee since the fee goes to the fund itself. If you plan on this being a short term trade, you should purchase the etf. Vanguard puts this fee in place not to profit, but to discourage short term trading.

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Re: Vanguard Long Term Bond Index to charge 0.50% fee on purchases

Post by billfromct » Tue May 14, 2019 8:31 pm

No one mentioned that the current purchase fee for the Long Term Corporate Bond Index (VLTCX) is 1.00%. The Intermediate Term Corporate Bond Index has a .25% purchase fee. I could not understand why the big difference between the two. Now the two purchase fees are more in line.

If my calculator is correct, that's a 50% reduction in the purchase fee for the Long Term Corporate Bond Index. That's a good thing.

Edit:. I never really looked at the "Treasury/Agency" bond funds & I thought only the Vanguard "Investment Grade" bond funds had the "purchase fees".

bill
Last edited by billfromct on Wed May 15, 2019 6:37 am, edited 1 time in total.

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Re: Vanguard Long Term Bond Index to charge 0.50% fee on purchases

Post by jeffyscott » Tue May 14, 2019 9:59 pm

billfromct wrote:
Tue May 14, 2019 8:31 pm
No one mentioned that the current purchase fee for the Long Term Corporate Bond Index (VLTCX) is 1.00%. The Intermediate Term Corporate Bond Index has a .25% purchase fee. I could not understand why the big difference between the two. Now the two purchase fees are more in line.

If my calculator is correct, that's a 50% reduction in the purchase fee for the Long Term Corporate Bond Index. That's a good thing.

bill
It's the long term bond index fund with the new fee not the corporate one. I actually made the same mistake in my first post, but quickly deleted that part of my comment before I got caught :) .

I noticed the Admiral shares (VBLAX) only began as of 2/7/2019. I think Vanguard purchase fees typically go down and disappear over time, don't they? So adding one where it did not exist before seems unusual or have they done this before, created Admiral shares and then at nearly the same time added a purchase fee to both Admiral and Investor?
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Re: Vanguard Long Term Bond Index to charge 0.50% fee on purchases

Post by fortyofforty » Wed May 15, 2019 6:19 am

Anyone who thinks a 1.00% purchase fee (VLTCX) is "insignificant" has never thrown around real money. :mrgreen:
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Re: Vanguard Long Term Bond Index to charge 0.50% fee on purchases

Post by z3r0c00l » Wed May 15, 2019 6:24 am

Would much prefer it to be a sales fee if under 1 year, that rewards good behavior. Not so sure about the comments re. how this "goes to the fund" and thus helps long term holders. This fund probably costs near nothing to run, I don't think they need anything more than the small ER to operate it anyway and doubt it will go up much if this front end load were restructured.

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Re: Vanguard Long Term Bond Index to charge 0.50% fee on purchases

Post by vineviz » Wed May 15, 2019 6:35 am

z3r0c00l wrote:
Wed May 15, 2019 6:24 am
Would much prefer it to be a sales fee if under 1 year, that rewards good behavior.
That's another approach that has a similar effect, but it tends to be less appealing to investors. The purchase fee tends to be much less surprising to them.
z3r0c00l wrote:
Wed May 15, 2019 6:24 am
Not so sure about the comments re. how this "goes to the fund" and thus helps long term holders. This fund probably costs near nothing to run, I don't think they need anything more than the small ER to operate it anyway and doubt it will go up much if this front end load were restructured.
The costs associated with buying and selling of securities aren't part of a fund's ER: the expense ratio pays the manager's salary, but doesn't cover things like commissions or bid/ask spreads. Frequent round-trip trading by investors in a fund can amplify those direct and indirect trading costs considerably, and the structure of a mutual fund means that all shareholders bear them equally. Those costs come directly out of the NAV.

A purchase fee or redemption fee gets paid back into the fund itself, thus increasing NAV. In this way, the investor who buys and/or sells his fund shares directly bears the costs they are causing: existing shareholders aren't unfairly forced to bear the costs of other traders.

Most mutual funds don't have considerable in-and-out trading, but for those that do (or those for which the trading is particularly costly) purchase and redemption fees are a way to ensure that each investor is more directly responsible for the costs that they are causing.
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Re: Vanguard Long Term Bond Index to charge 0.50% fee on purchases

Post by Ping Pong » Wed May 15, 2019 6:40 am

The fee isn’t to discourage trading. There are spread costs to buying and selling securities inside the fund. Per SEC rules, these aren’t included in the expense ratio. The fee is merely passing those costs on to you. If you were to buy the bonds individually, you’d be stuck with the same costs, you just might be oblivious to them. They could charge 0.25% on buys and sells, but it’s just simpler to have one fee of 0.50%.
Last edited by Ping Pong on Wed May 15, 2019 6:57 am, edited 2 times in total.

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Re: Vanguard Long Term Bond Index to charge 0.50% fee on purchases

Post by fortyofforty » Wed May 15, 2019 6:44 am

Ping Pong wrote:
Wed May 15, 2019 6:40 am
The fee isn’t to discourage trading. There are spread costs to buying and selling securities inside the fund. Per SEC rules, these aren’t included in the expense ratio. The fee is merely passing those costs on to you. If you were to buy the bonds individually, you’d be stuck with the same costs, you just might be oblivious to them. They could charge 0.5% on buys and sells, but it’s just simpler to have one fee of 1.0%. Vanguard doesn’t want to give the impression they are trying to lock people into funds, so they never charge sell fees on funds or place restrictions on selling. Fees and restrictions are only ever on buying, so you know what you’re getting yourself into ahead of time.
Really? I thought VGRLX and VIAAX have "sell fees", which would mean Vanguard does indeed sometimes place "restrictions on selling". I could be wrong, though.
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Re: Vanguard Long Term Bond Index to charge 0.50% fee on purchases

Post by Ping Pong » Wed May 15, 2019 6:55 am

fortyofforty wrote:
Wed May 15, 2019 6:44 am
Really? I thought VGRLX and VIAAX have "sell fees", which would mean Vanguard does indeed sometimes place "restrictions on selling". I could be wrong, though.
Thanks for the info. I guess they do charge redemption fees. I edited my post. I believe they never prevent you from selling though. They can prevent you from buying, but not selling.

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Re: Vanguard Long Term Bond Index to charge 0.50 fee on purchases

Post by jeffyscott » Wed May 15, 2019 7:15 am

vineviz wrote:
Tue May 14, 2019 5:27 pm
jeffyscott wrote:
Tue May 14, 2019 4:54 pm
Since only the mutual fund charges the fee, do the proceeds go only to the mutual fund shareholders?
Yes.

In a mutual fund, unlike an ETF, the trading costs associated with investor turnover are born all all existing shareholders and not just those doing the buying and selling. Fees like this are meant to ensure that existing shareholders are not adversely impacted by frequent traders.
After looking at latest semi-annual report for a fund that currently charges a fee, it seems the fee revenue does not go only to the mutual fund share classes. Long term corporate currently has purchase fee. In the ETF section of "Financial Highlights" there is a line for "Net Realized and Unrealized Gain (Loss) on Investments", with a footnote stating: "Includes increases from purchase and redemption fees of $.00, $.09, $.09, $.03, $.11, and $.05".

So it seems Vanguard is allowing mutual fund shareholder purchase fees to subsidize ETF shareholders, who do not pay these fees.

https://personal.vanguard.com/us/faces/ ... undId=1947
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Re: Vanguard Long Term Bond Index to charge 0.50 fee on purchases

Post by stan1 » Wed May 15, 2019 7:44 am

jeffyscott wrote:
Wed May 15, 2019 7:15 am

After looking at latest semi-annual report for a fund that currently charges a fee, it seems the fee revenue does not go only to the mutual fund share classes. Long term corporate currently has purchase fee. In the ETF section of "Financial Highlights" there is a line for "Net Realized and Unrealized Gain (Loss) on Investments", with a footnote stating: "Includes increases from purchase and redemption fees of $.00, $.09, $.09, $.03, $.11, and $.05".

So it seems Vanguard is allowing mutual fund shareholder purchase fees to subsidize ETF shareholders, who do not pay these fees.

https://personal.vanguard.com/us/faces/ ... undId=1947
Trading costs of mutual funds are paid by all share class holders unless Vanguard has broken trading costs out by share class as they have done for some funds now. We don't know if they have done that for all. It's not clear yet whether all funds with ETF share classes have had the ETF and Admiral share class expense ratios uncoupled. I think it should be correct that if Vanguard is allocating trading costs only to mutual fund investors then only mutual fund investors should benefit from purchase and redemption fees. I wrote "I think" because there may be more complexity here I don't understand.

Trading an ETF share is a computer based ledger entry; it doesn't result in the actual buy or sell of a security in the underlying creation units. Buying and selling a mutual fund does result in an actual security trades. That's why trading costs for ETFs are lower.

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Re: Vanguard Long Term Bond Index to charge 0.50 fee on purchases

Post by vineviz » Wed May 15, 2019 7:59 am

jeffyscott wrote:
Wed May 15, 2019 7:15 am
So it seems Vanguard is allowing mutual fund shareholder purchase fees to subsidize ETF shareholders, who do not pay these fees.
Not actually, because ETF shareholders simply pay their share of the costs via a different mechanism: the bid/ask spread (or part of it) on the ETF covers the trading costs associated with each share.

It would be illegal to knowingly let one share class subsidize the expenses incurred by another share class.

The accounting is slightly different between fund shares and ETF shares , but the net effect is the same. One difference is that for ETFs the costs are directly assessed whereas Vanguard must estimate them for mutual fund shares.
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Re: Vanguard Long Term Bond Index to charge 0.50 fee on purchases

Post by jeffyscott » Thu May 16, 2019 7:57 am

vineviz wrote:
Wed May 15, 2019 7:59 am
jeffyscott wrote:
Wed May 15, 2019 7:15 am
So it seems Vanguard is allowing mutual fund shareholder purchase fees to subsidize ETF shareholders, who do not pay these fees.
Not actually, because ETF shareholders simply pay their share of the costs via a different mechanism: the bid/ask spread (or part of it) on the ETF covers the trading costs associated with each share.
Average spread of BLV and VCLT is 0.03%. When ETF shareholders "pay" that cost, none of it goes to mutual fund shareholders. The mutual fund shareholders pay 0.5% and 1% to purchase. The fees that the fund shareholders pay is then shared with ETF holders. That sure seems like a subsidy to the ETF shareholders to me.

Besides that, the mutual fund purchase fees are over 16x and over 33x the cost of the spreads.
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Re: Vanguard Long Term Bond Index to charge 0.50 fee on purchases

Post by vineviz » Thu May 16, 2019 8:15 am

jeffyscott wrote:
Thu May 16, 2019 7:57 am
Average spread of BLV and VCLT is 0.03%.
Maybe recently , but it varies and has often been two or even three times that level.

And because of the way ETF unit creation works the costs associated with an ETF trade are generally lower than what is needed for an equivalent mutual fund trade.
The fees that the fund shareholders pay is then shared with ETF holders.
That’s simply not true.
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Re: Vanguard Long Term Bond Index to charge 0.50 fee on purchases

Post by stan1 » Thu May 16, 2019 8:23 am

vineviz wrote:
Thu May 16, 2019 8:15 am
The fees that the fund shareholders pay is then shared with ETF holders.
That’s simply not true.
vineviz, did you read the prospectus/semi-annual report to confirm this?

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Re: Vanguard Long Term Bond Index to charge 0.50 fee on purchases

Post by jeffyscott » Thu May 16, 2019 8:34 am

stan1 wrote:
Thu May 16, 2019 8:23 am
vineviz wrote:
Thu May 16, 2019 8:15 am
The fees that the fund shareholders pay is then shared with ETF holders.
That’s simply not true.
vineviz, did you read the prospectus/semi-annual report to confirm this?
Yes, as I noted previously:
In the ETF section of "Financial Highlights" there is a line for "Net Realized and Unrealized Gain (Loss) on Investments", with a footnote stating: "Includes increases from purchase and redemption fees of $.00, $.09, $.09, $.03, $.11, and $.05".

Not sure what else this could mean other that the value of ETF is increased due to funds coming in from purchase and redemption fees, fees that are paid only by mutual fund shareholders.
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Re: Vanguard Long Term Bond Index to charge 0.50 fee on purchases

Post by jeffyscott » Thu May 16, 2019 8:37 am

vineviz wrote:
Thu May 16, 2019 8:15 am
jeffyscott wrote:
Thu May 16, 2019 7:57 am
Average spread of BLV and VCLT is 0.03%.
Maybe recently , but it varies and has often been two or even three times that level.
Hence the use of the term average. Vanguard reports the average spread at 0.03%, here: https://institutional.vanguard.com/VGAp ... daskspread
Time is your friend; impulse is your enemy. - John C. Bogle

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Re: Vanguard Long Term Bond Index to charge 0.50 fee on purchases

Post by vineviz » Thu May 16, 2019 8:53 am

stan1 wrote:
Thu May 16, 2019 8:23 am
vineviz wrote:
Thu May 16, 2019 8:15 am
The fees that the fund shareholders pay is then shared with ETF holders.
That’s simply not true.
vineviz, did you read the prospectus/semi-annual report to confirm this?
It’s dictated by US securities law, but I don’t have a citation handy. If I have time today I’ll look up a source for you.
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Re: Vanguard Long Term Bond Index to charge 0.50% fee on purchases

Post by informal guide » Thu May 16, 2019 8:53 am

I wonder if people are missing the impact to Vanguard of purchase fees on bond fund purchases. I see two:

1) Assessing purchase fees on an index fund generates revenue that goes to the fund and therefore improves a fund's reported tracking vs. its index that does not incur the bid/ask costs of securities transactions. Longer term, this modestly improves an index fund's performance vs. its index and may competitively benefit the fund

2) From the fund's standpoint, an authorized party's ETF creation or redemption in kind incurs the bid/ask trading costs, not the fund. This is not the case when a fund does net buys or sells on a daily basis with direct investors.

I wouldn't be surprised if some outside parties are doing significant longer term purchases or market timing trades with this fund for their model portfolios or retirement plans. Vanguard sees those records and may want to reduce this activity and allocate the bid/ask costs to those players who continue to do it, rather than to impact fund performance.

Given that this fee goes to the fund, I am willing to give Vanguard and its independent directors (who had to approve the fee) the benefit of the doubt that this fee is appropriate.

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Re: Vanguard Long Term Bond Index to charge 0.50% fee on purchases

Post by Misenplace » Thu May 16, 2019 10:25 am

Several posts that added nothing constructive to the debate have been removed. Please keep the discussion civil.

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Re: Vanguard Long Term Bond Index to charge 0.50% fee on purchases

Post by MFInvestor » Thu May 16, 2019 3:40 pm

Article in today's Philadelphia Inquirer on this topic:

Why would anyone buy the Mutual Fund shares versus the ETF shares going forward.

It appears that by buying the ETF shares you are avoiding a few of 0.50% starting July 10, 2019.

This fee appears very steep when you consider that the expense ratio is only 0.07%.




"Vanguard slaps new 0.50% fee on bond mutual fund shares, nudging customers into ETFs"


by Erin Arvedlund, Updated: May 16, 2019- 7:53 AM

https://www.philly.com/business/vanguar ... 90516.html
If you want to invest in one of Vanguard’s popular bond index mutual funds, the cost is about to go up.

Vanguard said it will levy a 0.50 percent purchase fee for Investor and Admiral share classes of its Vanguard Long-Term Bond Index fund starting July 10, according to an addendum issued May 10, 2019 by the investment firm.

“So, if you are a large investor looking to buy one of Vanguard’s bond index funds, and you want to avoid the fees, call Vanguard and tell them your plans. Of course, you could also just buy the fund’s ETF shares and ignore the fees entirely,” he added.

“It costs money to go into the market and buy and sell bonds, so this fee covers that. The new money coming in should pay those costs, not existing mutual fund shareholders,” he explained. “That’s the idea, so current shareholders are not impacted by large flows in and out of the fund.”

And therein lies a clue to why Vanguard may be imposing these purchase fees on its bond index funds—to encourage large, tactical traders to use their ETF shares, or find another fund to flog.

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Re: Vanguard Long Term Bond Index to charge 0.50% fee on purchases

Post by LadyGeek » Thu May 16, 2019 3:56 pm

The prospectus has additional language, which is also stated in the Philly Inquirer (Vanguard Sector Bond Index Funds Prospectus is linked in the article). I broke the statement into separate paragraphs for readability (Vanguard Intermediate-Term Corporate Bond Index Fund page 51).
Purchase and Transaction Fees

Vanguard Intermediate-Term and Long-Term Corporate Bond Index Funds charge fees of 0.25% and 1.00%, respectively, on all purchases of shares, including shares that you purchase by exchange from another Vanguard fund.

In addition, Vanguard Short-Term and Intermediate-Term Corporate Bond Index Funds each reserve the right to impose a transaction fee on any purchase that, in the opinion of the advisor, would disrupt efficient management of the Fund. The advisor believes that it may be necessary to impose a transaction fee of 0.25% for the Short-Term Corporate Bond Index Fund and a transaction fee of 0.50% for the Intermediate-Term Corporate Bond Index Fund.

The advisor may impose this transaction fee if an investor’s aggregate purchases into a Fund over a 12-month period exceed, or are expected to exceed, $100 million for the Short-Term Corporate Bond Index Fund or $50 million for the Intermediate-Term Corporate Bond Index Fund.

Unlike a sales charge or load paid to a broker or a fund management company, purchase and transaction fees are paid directly to the Fund to offset the costs of buying securities.
I read this as Vanguard reserving the right to impose the additional transaction fees if you buy > $100 million for Short-Term ($50 million for Intermediate-term) in a 12-month period. That leaves me out.

The Vanguard Mortgage-Backed Securities Index Fund has similar language (page 67), but additional conditions when the fee does not apply.
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Re: Vanguard Long Term Bond Index to charge 0.50% fee on purchases

Post by fortyofforty » Thu May 16, 2019 4:00 pm

What is very clear is that ETFs are the hot flavor in personal investments, and Vanguard has been pushing them for several years now. Jack Bogle recognized the potential dangers in ETFs and spoke of them often, which you can explore if you care to search. I tend to be skeptical, and still don't like being forced by Vanguard to buy in whole shares only, but do own some ETFs... for now.
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Re: Vanguard Long Term Bond Index to charge 0.50% fee on purchases

Post by retiringwhen » Thu May 16, 2019 5:31 pm

fortyofforty wrote:
Thu May 16, 2019 4:00 pm
What is very clear is that ETFs are the hot flavor in personal investments, and Vanguard has been pushing them for several years now. Jack Bogle recognized the potential dangers in ETFs and spoke of them often, which you can explore if you care to search. I tend to be skeptical, and still don't like being forced by Vanguard to buy in whole shares only, but do own some ETFs... for now.
I think it is safe to summarize Jack's concern to be that the industry uses ETFs to encourage active trading and the structure of the funds make that a natural concern for him to have and (100% valid).

On the other hand, his famous frugality could most likely be used to bring him around if it proves out that the last bit of cost to be wrung from the fund business is to be gotten by converting shares to ETF structure, I can't believe he would all that opposed.

In the context of this discussion of purchase fees it seems like the fair-shake and low-cost solutions for these funds appears to go to the ETF.

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Re: Vanguard Long Term Bond Index to charge 0.50% fee on purchases

Post by fortyofforty » Thu May 16, 2019 6:19 pm

retiringwhen wrote:
Thu May 16, 2019 5:31 pm
fortyofforty wrote:
Thu May 16, 2019 4:00 pm
What is very clear is that ETFs are the hot flavor in personal investments, and Vanguard has been pushing them for several years now. Jack Bogle recognized the potential dangers in ETFs and spoke of them often, which you can explore if you care to search. I tend to be skeptical, and still don't like being forced by Vanguard to buy in whole shares only, but do own some ETFs... for now.
I think it is safe to summarize Jack's concern to be that the industry uses ETFs to encourage active trading and the structure of the funds make that a natural concern for him to have and (100% valid).

On the other hand, his famous frugality could most likely be used to bring him around if it proves out that the last bit of cost to be wrung from the fund business is to be gotten by converting shares to ETF structure, I can't believe he would all that opposed.

In the context of this discussion of purchase fees it seems like the fair-shake and low-cost solutions for these funds appears to go to the ETF.
There's no such thing as a free lunch. However, it seems those owning ETFs of these specific funds are eating lunch at subsidized prices.

And Jack might well have sent some money Fidelity's way, given the zero cost index funds now offered there. :shock:
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Re: Vanguard Long Term Bond Index to charge 0.50% fee on purchases

Post by whodidntante » Thu May 16, 2019 6:24 pm

The ETF shareholders should pay less because ETFs are structurally more efficient than mutual funds.

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Re: Vanguard Long Term Bond Index to charge 0.50% fee on purchases

Post by Paul Romano » Thu May 16, 2019 7:16 pm

Post by whodidntante » Thu May 16, 2019 6:24 pm

The ETF shareholders should pay less because ETFs are structurally more efficient than mutual funds.
Can you outline how ETFs are more efficient?

I can think of one way in particular.

If I purchase Vanguard ETFs and hold them at Schwab or Fidelity it is cheaper for Vanguard then if I held them at Vanguard. If I have a question I call Fidelity customer service and not Vanguard. My statements and tax forms come from Fidelity who incurs the cost of producting. Vanguard sells the product and Schwab or Fidelity incur the cost of servicing the account.

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Re: Vanguard Long Term Bond Index to charge 0.50% fee on purchases

Post by vineviz » Thu May 16, 2019 7:26 pm

fortyofforty wrote:
Thu May 16, 2019 6:19 pm

There's no such thing as a free lunch. However, it seems those owning ETFs of these specific funds are eating lunch at subsidized prices.
No one is being subsidized: everyone is paying for their own meal.

As I said earlier, anything else would be illegal.
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Re: Vanguard Long Term Bond Index to charge 0.50% fee on purchases

Post by retiringwhen » Thu May 16, 2019 7:31 pm

Paul Romano wrote:
Thu May 16, 2019 7:16 pm
Post by whodidntante » Thu May 16, 2019 6:24 pm

The ETF shareholders should pay less because ETFs are structurally more efficient than mutual funds.
Can you outline how ETFs are more efficient?

I can think of one way in particular.

If I purchase Vanguard ETFs and hold them at Schwab or Fidelity it is cheaper for Vanguard then if I held them at Vanguard. If I have a question I call Fidelity customer service and not Vanguard. My statements and tax forms come from Fidelity who incurs the cost of producting. Vanguard sells the product and Schwab or Fidelity incur the cost of servicing the account.
Because share redemptions and creation are executed as asset swaps (not a $ trade), the bid/ask spread is avoided by the fund. Normal trading among shareholders is executed outside the fund without cost.

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Re: Vanguard Long Term Bond Index to charge 0.50 fee on purchases

Post by Ping Pong » Thu May 16, 2019 7:53 pm

vineviz wrote:
Wed May 15, 2019 7:59 am
Not actually, because ETF shareholders simply pay their share of the costs via a different mechanism: the bid/ask spread (or part of it) on the ETF covers the trading costs associated with each share.
Actually the bond spread costs aren’t paid for from the ETF spread. They are paid from the premium over nav during share creations and discounts to nav during share destructions. The ETF spread can be very low, ie 0.01 during this process, while the premium or discount can be very high. For some reason, most people don’t look at the premium, they only look at the spread.

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Re: Vanguard Long Term Bond Index to charge 0.50 fee on purchases

Post by vineviz » Thu May 16, 2019 8:00 pm

Ping Pong wrote:
Thu May 16, 2019 7:53 pm
vineviz wrote:
Wed May 15, 2019 7:59 am
Not actually, because ETF shareholders simply pay their share of the costs via a different mechanism: the bid/ask spread (or part of it) on the ETF covers the trading costs associated with each share.
Actually the bond spread costs aren’t paid for from the ETF spread. They are paid from the premium over nav during share creations and discounts to nav during share destructions. The ETF spread can be very low, ie 0.01 during this process, while the premium or discount can be very high. For some reason, most people don’t look at the premium, they only look at the spread.
Not sure where you heard this, but it’s not correct nor is it consistent with how ETF baskets are created and redeemed.
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Re: Vanguard Long Term Bond Index to charge 0.50% fee on purchases

Post by jeffyscott » Thu May 16, 2019 8:16 pm

Paul Romano wrote:
Thu May 16, 2019 7:16 pm
Post by whodidntante » Thu May 16, 2019 6:24 pm

The ETF shareholders should pay less because ETFs are structurally more efficient than mutual funds.
Can you outline how ETFs are more efficient?

I can think of one way in particular.

If I purchase Vanguard ETFs and hold them at Schwab or Fidelity it is cheaper for Vanguard then if I held them at Vanguard. If I have a question I call Fidelity customer service and not Vanguard. My statements and tax forms come from Fidelity who incurs the cost of producting. Vanguard sells the product and Schwab or Fidelity incur the cost of servicing the account.
That's not the ETF being more efficient. It is just changing how the customer service cost is paid. You or someone else is paying those costs, they don't just go away.
Time is your friend; impulse is your enemy. - John C. Bogle

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Re: Vanguard Long Term Bond Index to charge 0.50% fee on purchases

Post by jeffyscott » Thu May 16, 2019 8:22 pm

vineviz wrote:
Thu May 16, 2019 7:26 pm
fortyofforty wrote:
Thu May 16, 2019 6:19 pm

There's no such thing as a free lunch. However, it seems those owning ETFs of these specific funds are eating lunch at subsidized prices.
No one is being subsidized: everyone is paying for their own meal.

As I said earlier, anything else would be illegal.
Where is the money coming from that allows Vanguard to report that the ETF shares Net Realized and Unrealized Gain (Loss) on Investments includes increases from purchase and redemption fees?
Time is your friend; impulse is your enemy. - John C. Bogle

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