Vanguard, the Valley Forge, Pa.-based sponsor known for its
low-cost ETFs, today launched seven new funds based on Russell
indexes. The new funds represent the latest step in an ambitious
expansion plan the third-biggest U.S. ETF company announced earlier
Today's rollout follows by about two weeks the launch of the
Vanguard S&P 500 ETF (NYSEArca:VOO) and eight other equity ETFs
based on S&P indexes. The company's plans are aimed at having a
broad lineup of Vanguard products that give different advisers who
favor different indexes the tools they need.
In keeping with Vanguard's aggressive stance on expenses, the
new funds carry annual expense ratios ranging from 0.12 percent to
0.20 percent; in other words, priced to undercut its main
Rick Genoni, the head of ETF product management at Vanguard,
said in a telephone interview today that his firm's expansion into
the heart of the ETF marketplace is designed to provide uniformity
for investors building long-term allocations.
"If you're using Russell products to gain exposure to the U.S.
equity market, then use Russell-based products uniformly," said
Genoni. "You can use a product, like an S&P product, over an
allocation built on MSCI indexes for tactical purposes. But when
you're building a long-term allocation, use the same underlying
Genoni argued that mixing benchmarks in a single portfolio can
result in unintended consequences for investors.
"That can create issues-either underlap or overlap in the
markets. It's critically important to align the underlying
The new Russell-based funds, their tickers and their annual
expense ratios are:
- Vanguard Russell 1000 ETF (NasdaqGM:VONE), 0.12 percent
- Vanguard Russell 1000 Value ETF (NasdaqGM:VONV), 0.15
- Vanguard Russell 1000 Growth ETF (NasdaqGM:VONG), 0.15
- Vanguard Russell 2000 Index Fund (NasdaqGM:VTWO), 0.15
- Vanguard Russell 2000 Value Index Fund (NasdaqGM:VTWV), 0.20
- Vanguard Russell 2000 Growth Index Fund (NasdaqGM:VTWG), 0.20
- Vanguard Russell 3000 Index Fund (NasdaqGM:VTHR), 0.15
Taking Aim At iShares
Expense ratios is clearly the field on which Vanguard wants to
fight the battle for investor dollars with iShares and other big
ETF sponsors with competing products.
Genoni acknowledged that in terms of tracking the underlying
Russell benchmarks, Vanguard's new products and iShares existing
funds are broadly similar.
"So it comes down to costs. That's what separates Vanguard."
The new funds make Vanguard's line of equity-style investing
ETFs, which already includes mega cap-, mid cap- and small
cap-based growth and value funds, the largest in the industry.
Style investing is based on the theory that "growth" stocks,
companies that expect to book above-average earnings, and "value"
stocks, companies that trade at a low price relative to their
fundamentals, can outperform the market.
The top holdings of the Russell 1000 Growth Index as of Aug. 31
were Exxon Mobil, Apple, and IBM. The top Russell 1000 Value Index
holdings were Procter & Gamble, AT&T, and JPMorgan
State Street Global Advisors also offers a line of style
investing ETFs that track Dow Jones indexes.
Vanguard's Expanding Universe
Vanguard has built its ETF platform largely on MSCI indexes,
after a 2003 legal dispute with Standard & Poor's over
licensing the S&P 500 and other Standard & Poor's
Earlier this year, however, Vanguard revealed plans for a total
of 20 new ETFs, including an S&P 500 ETF. It said the funds
would be based on a variety of indexes, including the Russell 1000,
Russell 2000 and Russell 3000 indexes, not just those provided by
Vanguard's ETF rollout, including municipal bond and real estate
funds, will take place throughout the coming year, and Vanguard
stressed that the new ETFs will cost substantially less than
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