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Vanguard is making good on promises to disrupt bond funds and continue to squeeze costs out of equity investing with the largest round of fee cuts in its history.
The $10tn money manager announced it would lop between 1 and 6 basis points off the expense ratios of 87 funds, including many of its US and overseas index trackers, as well as popular actively managed stock and bond funds. It estimated the reductions would save clients $350mn in 2025.
The move will pile pressure on Vanguard’s rivals, particularly smaller active managers that charge much higher fees and have been struggling with outflows as investors opt for low-cost options.
Many of the fee cuts follow through on a gauntlet that Vanguard’s new chief executive laid down last autumn shortly after his arrival. Salim Ramji said then that Vanguard planned a fresh push into active fixed income to take advantage of “extraordinary” inefficiencies and high prices in the area.
After the cuts, Vanguard’s actively managed bond funds will have an average expense ratio of 0.10 per cent, and its index bond funds will charge an average of 0.05 per cent. The industry average for active taxable bond funds is 0.44 per cent, while taxable index bond funds average 0.08 per cent, according to Morningstar Direct.
Vanguard is already a dominant player in equity investing, thanks to its enormous index-tracking funds and relatively low-cost active funds. It runs the world’s largest investment fund, a $1.78tn behemoth that tracks the entire US market, and its S&P 500 ETF is the world’s second-largest and closing in on the market leader.
Fee cuts are a Vanguard tradition. Set up by investor Jack Bogle 50 years ago, the Pennsylvania-based group is owned by the investors in its funds rather than by its employees or outside shareholders. That means that income left over, after the firm pays staff and invests in technology and new products, are used to cut fees on the funds.
“We’re proud to build on Vanguard’s legacy of lowering the costs of investing — which we have done more than 2,000 times since our founding — by announcing our largest-ever set of expense ratio reductions. Lower costs enable investors to keep more of their returns, and those savings compound over time,” said Ramji in a statement.
The fee-cutting strategy has made Vanguard the world’s second-largest money manager, even though it offers far fewer products than larger rival BlackRock and other competitors. The group garnered nearly $335bn in net inflows in 2024 and led the industry in ETF flows.
These cuts affect 168 share classes, with two-thirds of them being traditional mutual funds and the rest exchange traded funds. The largest fee cut, of 6 basis points, brings the fee on its actively managed Windsor large cap value fund down to 0.26 per cent, while many of its small- and mid-cap US index funds had cuts of 5 basis points that pushed their expense ratios to 0.10 per cent or less.
The projected $350mn in savings would eclipse Vanguard’s previous record set in 2016, when $300mn in cuts led to a company-wide fee drop of 1.3 basis points.
Nearly 40 per cent of the 2025 reductions involved classes of bond funds, even though fixed-income assets account for 25 per cent of Vanguard’s total assets. Vanguard’s investment strategists recently recommended that customers flip the traditional 60/40 split between equities and bonds in their portfolios to 38 per cent equities and the rest fixed income.
“Bonds are poised to play a crucial role in investors’ portfolios going forward,” said Greg Davis, the group’s president and chief investment officer. In active bond funds “our portfolio managers can take investment risk strategically as they don’t have to overcome the hurdle of high fees to add value”.
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