Vanguard brokerage commission expense in 2013

NYSE

Floor of the New York Stock Exchange

Stock market mutual funds incur the costs of making transactions in the market place.  These costs are in addition to the costs of managing the fund.

Transaction costs include brokerage commission expense, bid and ask spreads, and market impact costs.

Brokerage commission costs are reported in a mutual fund’s statement of additional information, which is a separate part of a fund’s annual prospectus.

If we take a fund’s commission expense and divide it into a fund’s average net assets (reported in each fund’s NSAR filing with the SEC EDGAR database) we can calculate a “commission ratio” percentage analogous to a fund’s expense ratio.

Vanguard mutual fund brokerage commission expense

The tables below provide commission ratios for Vanguard passively managed stock funds and for the firm’s actively managed funds.

According to Vanguard’s notes on commission expense, changes in a fund’s commission expense is primarily due to a number of potential factors:

  • A change in investor flows into or out of the fund:
  • An increase or decrease in the volatility of investor flows:
  • An increase or decrease in market volatility:
  • An increase or decrease in a fund’s turnover of stocks:
  • A change in investment management that results in lower commission expense.
Vanguard passive funds

CommissionratioVanguard passive fund brokerage commission expense increased during the  2013 fiscal year due to Vanguard changing fund benchmark indexes for many of its funds during the year.

For US stock indexes, funds formerly benchmarked to MSCI indexes were switched to CRSP indexes.  For international stock indexes,  funds formerly benchmarked to  MSCI indexes were switched to FTSE indexes.

In most instances, the increase in commission expense left commission ratios  of less than one basis point for many funds, and resulted in an average expense of just .01%.

The trend (see chart above) is for a reduction in the commission ratio over time.

This trend may result from the following factors:

  • Cross trading: When a stock migrates from one market segment to another (for example a small cap stock moves to a mid cap index and a mid cap stock moves to a small cap index), the funds will simply trade the stocks between the two index funds and bypass trading on the market.
  • Exchange-traded shares:  Most of the funds have exchange-traded shares.  Individual ETF shareholders buying and selling shares does not result in the buying or selling of stock in the fund portfolio. Institutional creation and redemption of ETF shares is done with in-kind stock transactions that reduce the buying and selling of shares by the fund. (see note below.)
  • Economy of scale: As a fund grows in size, its commission ratio will drop if the rate of asset growth exceeds the growth in commission expense.

Vanguard passive mutual fund brokerage commission expense in 2013

Fund ANA Brokerage CR
Vanguard Total Stock Market Index 258,511,762,000 $5,089,000 0.00%
Vanguard 500 Index 139,669,800,000 $1,008,000 0.00%
Vanguard Large-Cap Index 7,242,240,000 $58,000 0.00%
Vanguard FTSE Social Index 709,389,000 $17,000 0.00%
Vanguard Growth Index 31,797,003,000 $830,000 0.00%
Vanguard Value Index 24,169,359,000 $391,000 0.00%
Vanguard High Yield Dividend Index 7,883,999,000 $204,000 0.00%
Vanguard Dividend Appreciation Index 19,994,196,000 $128,000 0.00%
Vanguard Extended Market Index 30,281,928,000 $1,303,000 0.00%
Vanguard Mid-Cap Index 39,626,457,000 $2,370,000 0.01%
Vanguard Mid-Cap Growth Index 3,559,666,000 $207,000 0.01%
Vanguard Mid-Cap Value Index 3,366,745,000 $233,000 0.01%
Vanguard Small-Cap Index 36,219,525,000 $4,451,000 0.01%
Vanguard Small-Cap Growth Index 12,445,390,000 $1,816,000 0.01%
Vanguard Small-Cap Value Index 10,181,514,000 $1,349,000 0.01%
Vanguard REIT Index 34,451,690,000 $1,723,000 0.01%
Vanguard European Stock Index 11,317,475,000 $674,000 0.01%
Vanguard Pacific Stock Index 4,642,176,000 $378,000 0.01%
Vanguard Emerging Markets Stock Index 70,626,249,000 $17,176,000 0.02%
Vanguard FTSE All-World ex-US Index 16,953,543,000 $685,000 0.00%
Vanguard FTSE All-World ex-US Small Cap Index 1,630,767,000 $115,000 0.01%
Vanguard Total International Stock Index 91,041,467,000 $8,716,000 0.01%
Vanguard Developed Market Index 16,540,178,000 $1,108,000 0.01%
Vanguard Total World Stock Index 3,167,477,000 $181,000 0.01%
Vanguard Global ex-US Real Estate 1,031,520,000 $138,000 0.01%
Vanguard Tax-Managed Capital Appreciation 4,780,340,000 $61,000 0.00%
Vanguard Tax-Managed Small-Cap 2,822,438,000 $241,000 0.01%
Average     0.01%
 Vanguard active funds
morn_broker

Morningstar data

 Vanguard active funds brokerage commission expense for fiscal year 2013 measured .06%.

The commission ratio for international stock funds was higher than for domestic stock funds, measuring 0.11% compared to 0.05%.

This difference is consistent with Morningstar studies of commission expense. Note that Vanguard active funds commission expense is lower than the average fund.

Vanguard active stock fund brokerage commission expense

Fund ANA Brokerage CR
Vanguard Dividend Growth 16,307,078,000 $2,410,000 0.01%
Vanguard Equity Income 11,504,995,000 $2,331,000 0.02%
Vanguard Growth & Income 4,649,537,000 $912,000 0.02%
Vanguard Morgan 9,249,407,000 $2,996,000 0.03%
Vanguard PRIMECAP 32,448,783,000 $3,956,000 0.01%
Vanguard PRIMECAP Core 5,157,686,000 $850,000 0.02%
Vanguard US Growth 4,050,883,000 $1,079,000 0.03%
Vanguard US Value 737,398,000 $133,000 0.02%
Vanguard Windsor 14,350,677,000 $6,908,000 0.05%
Vanguard Windsor II 41,246,998,000 $14,842,000 0.04%
Vanguard Capital Opportunity 8,740,570,000 $1,506,000 0.02%
Vanguard Capital Value 911,957,000 $1,796,000 0.20%
Vanguard Mid Cap Growth 2,502,206,000 $3,665,000 0.15%
Vanguard Selected Value 5,387,479,000 $3,665,000 0.07%
Vanguard Strategic Equity 3,697,655,000 $651,000 0.02%
Vanguard Explorer 10,201,678,000 $11,776,000 0.12%
Vanguard Explorer Value 165,177,000 $263,000 0.16%
Vanguard Strategic Small Cap 303,557,000 $86,000 0.03%
Vanguard Energy 11,957,652,000 $3,392,000 0.03%
Vanguard Health Care 29,501,208,000 $5,310,000 0.02%
Vanguard Precious Metals & Mining 2,510,472,000 $1,663,000 0.07%
Vanguard Emerging Markets Select 174,141,000 $334,000 0.19%
Vanguard International Explorer 1,978,888,000 $2,317,000 0.12%
Vanguard International Growth 18,541,176,000 $12,048,000 0.06%
Vanguard International Value 7,159,754,000 $6,773,000 0.09%
Vanguard Global Equity 4,178,623,000 $3,031,000 0.07%
Average     0.06%
Context

Keep in mind that spread costs and market impact are usually higher transaction costs than brokerage commissions.  Unfortunately, these costs are not reported by mutual funds. These costs are estimated to equal or exceed a fund’s expense ratio.

Note

Vanguard manages a number of index funds that issue exchange-traded shares and high minimum mutual fund shares (either $100,000 admiral shares or $5 million dollar institutional shares). These funds are dominated by exchange-traded shares.

These funds include Vanguard’s suites of S&P and Russell indexes. They also include the series of Mega stock indexes, which transitioned to CRSP indexes in 2013, as well as the series of sector index funds tracking MSCI sector indexes. The tables below show  available 2013 data for these funds.

The S&P 500 value index reports commission expense of less than $1,000 for the year. The table lists this as $999.

A number of sector funds have unreported commission expense.

Vanguard ETF 2013 brokerage commission expense

Fund ANA Brokerage CR
Vanguard S&P 500 Growth 118,326,000 $1,000 0.00%
Vanguard S&P 500 Value 83,216,000 $999 0.00%
Vanguard S&P 400 271,503,000 $5,000 0.00%
Vanguard S&P 400 Growth 164,646,000 $3,000 0.00%
Vanguard S&P 400 Value 56,348,000 $3,000 0.01%
Vanguard S&P 600 179,602,000 $6,000 0.00%
Vanguard S&P 600 Growth 18,408,000 $2,000 0.01%
Vanguard S&P 600 Value 21,399,000 $2,000 0.01%
Vanguard Russell 3000 337,081,000 $15,000 0.00%
Vanguard Russell 1000 707,334,000 $28,000 0.00%
Vanguard Russell 1000 Growth 909,761,000 $13,000 0.00%
Vanguard Russell 1000 Value 788,001,000 $17,000 0.00%
Vanguard Russell 2000 434,993,000 $34,000 0.01%
Vanguard Russell 2000 Growth 189,448,000 $18,000 0.01%
Vanguard Russell 2000 Value 62,503,000 $11,000 0.02%
Vanguard Mega Cap 803,902,000 $7,000 0.00%
Vanguard Mega Cap Growth 945,049,000 $29,000 0.00%
Vanguard Mega Cap Value 649,935,000 $1,000 0.00%
Average Commission Ratio     0.00%

Vanguard sector ETF 2013 brokerage commission expense

Fund ANA Brokerage CR
Vanguard Consumer Discretionary 759,207,000  
Vanguard Consumer Staples 1,437,168,000 $25,000 0.00%
Vanguard Energy 2,431,704,000  
Vanguard Financials 1,226,131,000 $27,000 0.00%
Vanguard Health Care 1,511,462,000  
Vanguard Industrials 719,604,000  
Vanguard Information Technology 2,957,498,000 $33,000 0.00%
Vanguard Materials 875,188,000 $8,000 0.00%
Vanguard Telecommunication Services 534,765,000 $110,000 0.02%
Vanguard Utilities 1,659,020,000  
Average Commission Ratio     0.01%

 

About

Barry Barnitz, administrator of both the Bogleheads® wiki and of Financial Page, a Bogleheads® blog

Posted in Market statistics, Vanguard
September 2014
M T W T F S S
« Aug   Oct »
1234567
891011121314
15161718192021
22232425262728
2930  
Categories
Archives
Follow Financial Page on WordPress.com
%d bloggers like this: