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Vanguard Launches Bid to Lead Broad Market

  • Vanguard S&P Small-Cap 600 ETF(VIOO) has an expense ratio of 0.15% and will compete directly with iShares S&P SmallCap 600(IJR), which has a 0.20% expense ratio.
  • Vanguard S&P Small-Cap 600 Growth ETF(VIOG) has an expense ratio of 0.20% and will compete directly with iShares S&P SmallCap 600 Growth(IJT), which has a 0.25% expense ratio.
  • Vanguard S&P Small-Cap 600 Value ETF(VIOV) has an expense ratio of 0.20% and will directly directly with iShares S&P SmallCap 600 Value(IJS), which has a 0.25% expense ratio.
  • Expense ratios are not the only factor when choosing between ETFs tracking identical indexes. Other consideration include commissions, dividend payment policies, liquidity and tracking error:

  • Commissions: The Vanguard ETFs are commission-free for clients of Vanguard, and the iShares ETFs listed above are commission-free for clients of Fidelity. Investors using other firms and anyone trading the SPDR ETFs will have to pay standard brokerage commissions.
  • Dividend payment policy: Vanguard and iShares typically follow the "industry best practice" of paying dividends within four business days of the ex-dividend date. SPDR has one of the most egregious dividend policies of any ETF sponsor by delaying dividend payments from SPDR S&P 500(SPY) up to six weeks.
  • Liquidity: SPY wins the liquidity argument hands down, as it typically accounts for more than a third of all ETF dollar volume every month. The nine competitive products from iShares are in the top 20% of all ETFs for average dollar volume and assets under management. The new Vanguard products have some catching up to do in this regard, but based on the success of their other products, this should not be a significant disadvantage for too long.
  • Tracking Error: The S&P indexes are well understood, and all three firms have extensive experience managing products based on them. The new ETFs will likely own all stocks in the index being tracked and not rely on sampling techniques. Therefore, any tracking error is likely to be insignificant.
  • When I first saw the ticker symbols for the new Vanguard ETFs, I thought they were just a hodgepodge of letters with Vs and Gs stuck on the end to distinguish Value from Growth. Then someone pointed out that the letters on the front are derivatives of roman numerals: V for 5 and VOO for S&P 500, IV for 4 and IVOO for S&P 400, VI for 6 and VIOO for S&P 600. I have them memorized already.

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    Ron Rowland is long IJH but has no positions in the companies or ETF sponsors mentioned. No income, revenue or other compensation (either directly or indirectly) is received from, or on behalf of, any of the companies or ETF sponsors mentioned. Rowland is the founder and president of Capital Cities Asset Management, a fee-based registered investment adviser in Austin, Texas. He is also the founder and publisher of Invest With An Edge and All Star Investor, where he has been providing market commentary and active investment advice since 1991. Opinions expressed in this article should not be considered personal recommendations to buy or sell any security.
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    VOO $190.76 0.81%
    VOOG $103.37 0.76%
    SPY $207.97 0.79%
    IVV $209.16 0.82%
    IVW $115.52 0.87%


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