Vanguard 2013 brokerage commission expense

Mutual funds that buy and sell stock incur brokerage commissions on these transactions. This transactional cost is not included in a fund's expense ratio, but the cost is reported in a fund's annual statement of additional information to the fund prospectus. Additional fund transactions costs, such as spread costs and market impact costs can be much higher than brokerage expense, but these costs are not reported and must be estimated.

Brokerage commission expense
The tables below provide Vanguard passive and active fund brokerage expense for 2013, both in absolute dollars and as a "commission ratio" (brokerage commission divided by average net assets). The tables are divided among index and passive tax-managed stock funds and actively managed stock funds. In 2013 passive funds brokerage expense averaged nil (range: nil to .024%), compared to active expense of 0.06% (range .01% to 0.20%).

In 2013 Vanguard implemented benchmark index changes for funds formerly benchmarked to MSCI indexes. This resulted in increased brokerage commission expenses for Vanguard passively managed funds during the fiscal year (overall passive fund brokerage commission expense in 2013 came to $50,951,00 compared to the 2012 $26,242,000 expense).

Balanced funds and fund of funds
Balanced mutual funds which buy and sell individual stocks pay brokerage commissions on the stock portion of the portfolio. A fund of funds does not ordinarily pay brokerage commissions on its buys and sells of the underlying mutual fund portfolios; but a fund of funds does incur brokerage expense for its purchases or sales of an ETF. In 2013 only the Vanguard Target Retirement Income fund incurred brokerage commission expense for ETF transactions. Balanced fund commission expense in 2013 was very low (ranging from nil to .019%). Keep in mind that a fund of funds will also bear the commission brokerage costs of the underlying portfolios.

Vanguard balanced fund of funds include the series of Lifestrategy funds; the series of target retirement funds; the series of Managed Payout funds; and the STAR fund. The majority of Vanguard balanced funds are indexed, or mostly indexed. Active balanced funds include the STAR, Wellesley, and Wellington funds.

Factors determining brokerage expense
Vanguard provides notes in the statement of additional information that attribute reasons behind higher and lower levels of brokerage expense for a given fund[/s]. Factors can include:
 * An increase or decrease in fund turnover;
 * An increase in shareholder flows into or out of the portfolio;
 * An increase or decrease in market volatility.

A new fund, with low net assets, will often have a higher than average "commission ratio" than similar funds with higher asset bases.

Data spreadsheets
Multiple year brokerage expense data is available in the spreadsheet tables below.