Index-fund titan

Vanguard

finally stepped into the burgeoning exchange-traded fund world Thursday when its

Vanguard Total Stock Market VIPERs

began trading on the

American Stock Exchange

.

Stymied in its efforts to launch exchange-traded shares tracking the

S&P 500, Vanguard launched shares tracking the even broader

Wilshire 5000 Total Market

index on Thursday, trading under the symbol VTI. The new share class will carry a 0.15% expense ratio, or $15 a year on a $10,000 investment. That's slightly lower than the 0.2% annual fee on the fund's traditional fund shares, and both are well below an average large-cap blend fund's 1.24% annual expense ratio, according to

Morningstar

.

The new share class will give Vanguard a fund in the broad index-based exchange-traded fund market, as a

licensing beef with

Standard & Poor's

has derailed the firm's efforts to launch exchange-traded shares for the

(VFINX) - Get Report

Vanguard 500 Index fund.

Unlike traditional mutual funds, exchange-traded funds, or ETFs, price throughout the trading day and trade like stocks on an exchange. Their popularity is a potent threat to traditional index mutual funds, where almost half of the $206 billion invested in S&P 500 index funds sits in Vanguard's coffers, according to

Lipper

. Of the $66 billion invested in ETFs, nearly $59 billion is invested in funds tracking broad U.S. stock indices like the S&P 500, according to the

Investment Company Institute

, the fund industry's largest trade group. For more details on ETFs, check out this

primer.

Vanguard's new ETF share class, called VIPERs (short for Vanguard Index Participation Equity Receipts), is the firm's first foray into the ETF market. The fund's 0.15% expense ratio is lower than the actual expenses carried by other broad, index-based ETFs, and it will be the first to track the Wilshire 5000, an index designed to mirror the performance of all U.S. traded stocks. That said, investors have to use brokers and pay a commission when they purchase ETF shares.

While the fund's low costs match Vanguard's cheap, long-term image, ETFs fast-trading image doesn't. Vanguard founder and industry legend John Bogle has criticized ETFs for potentially luring investors into short-term trading.

"I think

ETFs are a natural step for Vanguard, but it's interesting that Bogle had been critical of ETFs because most of the money going into ETFs is going in and out very fast," says Russ Kinnel, director of fund research at Chicago fund-tracker Morningstar. "I think ETFs are mainly tools for institutions or short-term traders. To a degree, they haven't lived up to their billing, but people still might use them correctly."

Shareholders of the

(VTSMX) - Get Report

Vanguard Total Stock Market Index fund's traditional share classes will be able to convert to the fund's ETF shares for a $50 fee once the shares launch at the end of May, according to a company statement.

The Vanguard Total Stock Market Index fund's traditional shares average a 13.1% annualized gain over the past five years, keeping pace with the average big-cap blend fund and lagging the S&P 500 by 1.8 percentage points, according to Morningstar.

The VIPERs shares opened trading at $114.50 and rose to $115.41, with two hours left in the trading day, on volume of 1.7 million shares, according to Morningstar.

Ian McDonald writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

imcdonald@thestreet.com, but he cannot give specific financial advice.