The Vanguard Effect

[dungoofed]

https://twitter.com/EricBalchunas/status/665301372804444161/photo/1

[JZinCO]

Interesting that Vanguard does offer a hi-yield bond fund but not etf.

http://www.investmentnews.com/article/20130220/FREE/130229999/rivals-in-but-vanguard-wont-offer-junk-bond-etfs

[Beaker]

The skeptic in me wonders if rather than Vanguard causing lower fees, it's just that Vanguard avoids funds that require high fees to operate. eg, micro-caps are difficult to invest in at scale because there a lot of them and limited liquidity.

[JZinCO]

The skeptic in me wonders if rather than Vanguard causing lower fees, it's just that Vanguard avoids funds that require high fees to operate. eg, micro-caps are difficult to invest in at scale because there a lot of them and limited liquidity.

I don't understand. That doesn't negate that Vanguard is influencing ERs across the board for asset classes of which they have ETFs and funds for.
Unless you're saying vanguard's TSM ETF is lower because they don't carry a microcap ETF, in which case, I had assumed that the costs to operate a given ETF are relatively independent of the costs to operate a different ETF.

Also, this because it is cool.

[Beaker]

The skeptic in me wonders if rather than Vanguard causing lower fees, it's just that Vanguard avoids funds that require high fees to operate. eg, micro-caps are difficult to invest in at scale because there a lot of them and limited liquidity.

I don't understand. That doesn't negate that Vanguard is influencing ERs across the board for asset classes of which they have ETFs and funds for.
Unless you're saying vanguard's TSM ETF is lower because they don't carry a microcap ETF, in which case, I had assumed that the costs to operate a given ETF are relatively independent of the costs to operate a different ETF.

Also, this because it is cool.

OK, I'm just going to say upfront that I'm being nitpicky and OCD about correlation vs. causation. Most likely the tweet is correct.

That said, the text of the tweet strongly implies that when Vanguard enters an area they make the fees go down - ie they are causing lower fees. But the data/chart just shows that Vanguard is in markets with lower fees, ie that they are correlated with lower fees. An equally valid interpretation of that chart would be that Vanguard only enters areas with lower fees, and avoids one with higher fees. So that's what I was getting at.

The chart of fees over time is mostly the same - it shows correlation but not causation.

[JZinCO]

OK, I'm just going to say upfront that I'm being nitpicky and OCD about correlation vs. causation. Most likely the tweet is correct.

That said, the text of the tweet strongly implies that when Vanguard enters an area they make the fees go down - ie they are causing lower fees. But the data/chart just shows that Vanguard is in markets with lower fees, ie that they are correlated with lower fees. An equally valid interpretation of that chart would be that Vanguard only enters areas with lower fees, and avoids one with higher fees. So that's what I was getting at.

The chart of fees over time is mostly the same - it shows correlation but not causation.

Completely agreed. I just that the graph was neat. I was actually looking for a graph that would show the decrease in industry average ER lagging behind Vanguard. That would suggest 'a vanguard effect'.

Anyway, back to your point though. Why do you think Vanguard can offer lower ER's on some assets because they don't offer ETFs or funds for other assets?

[Beaker]

Anyway, back to your point though. Why do you think Vanguard can offer lower ER's on some assets because they don't offer ETFs or funds for other assets?

Oh, that was just speculation that maybe they avoid offering funds in certain categories, asset classes, or tilts because they can't access them efficiently or in a way that would work for their customers. I think that's pretty clearly true in some of the more wacky asset classes like private equity or timber. Maybe it's true of some of the things mentioned in the tweet, or maybe not.

I picked microcap because it was first and took a total guess at some reasons off the top of my head - no idea if I was right or not. :)

Now that I look at the tweet more carefully, I notice he specifically mentioned ETFs rather than just funds. Which seems like a very fine distinction to make. Turns out that Vanguard has funds in two of the highlighted categories ("High Yield Bond" is VWEAX, and  "Gold Miners" is VGPMX), but not ETFs.