Is Vanguard Really the Cheapest Fund Provider?

Vanguard Group, long known as a low-cost index mutual fund pioneer, faces real price competition for certain individual investment products today but continues to lead the industry overall as a low-expense provider, a Morningstar analyst says.

Looking at Vanguard’s entire lineup, the fund giant “definitely” deserves its reputation as the industry’s low-cost provider, Alec Lucas, Morningstar’s director of manager research and lead Vanguard analyst, said in a recent video interview on the research firm’s website.

“But what Vanguard has essentially done in finance lingo is it’s democratized beta. Vanguard has given investors very cheap access to broad diversified funds. And its biggest competitors —so, think BlackRock’s iShares business, think Fidelity, think Schwab — they’ve either matched or, in some cases, undercut Vanguard on fees,” he said in the chat with Morningstar investment specialist Susan Dziubinski.

“Fidelity has a free index fund,” Lucas explained, according to the video transcript. “If you look at individual options, you might beat Vanguard. But across the board, Vanguard is, I think, still the low-cost provider. Its U.S. average fund-weighted expense ratio is 8 basis points. By contrast, the industry average is 47 basis points.”

Vanguard compares how much it has saved investors based on its monthly average assets over 2022 relative to the industry average, he noted. That calculation shows that Vanguard saved clients collectively about $26 billion in 2022, he said.