The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: Mr FrugalNL on January 27, 2016, 11:35:38 PM
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This may be old news to some of you, but I was pleasantly surprised to learn that, in spite of VTI's stated expense ratio of 0.05%, the holding costs actually work out to 0%.
http://news.morningstar.com/articlenet/article.aspx?id=736958
The accompanying table features the five ETFs with the lowest estimated holding costs within the U.S. large-blend Morningstar Category. In all but one case, these funds’ estimated holding costs are less than or equal to their expense ratios. This indicates that most of these funds have tracked their benchmarks extraordinarily well on a net-of-fees basis. In fact, four of them have tracked so well that they’ve managed to overcome a portion of the drag on their performance created by their fees. In the case of VTI, the fund has tracked so well (note the estimated holding cost of 0.0) that it is, for all intents and purposes, “free.”
It must be Vanguard's securities lending programme that accounts for the actual costs working out to less than the 'official' costs. Anyway, commence the hallelujah chorus!
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For a more thorough explanation of how they actually accomplish positive tracking error: http://www.efficientfrontier.com/ef/998/indexfun.htm (http://www.efficientfrontier.com/ef/998/indexfun.htm)
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Thanks a lot for the link! That was a very interesting read.
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For a more thorough explanation of how they actually accomplish positive tracking error: http://www.efficientfrontier.com/ef/998/indexfun.htm (http://www.efficientfrontier.com/ef/998/indexfun.htm)
Thanks johnny847 that was a great read.