Vanguard Investments Canada Inc. has just launched four new actively managed mutual funds and Canadian investors everywhere should be glad, as this may just be the push that gets the Big Banks to see the handwriting on the wall to start cutting their ridiculous mutual fund fees.
The Vanguard Group, Inc. is a household name that is recognized the world over for investor-friendly investment products, and particularly, for championing low-fee indexing strategies. If you have read my review on Jack Bogle’s book – Common Sense on Mutual Funds – then you probably understand my admiration for the man and the company (Vanguard) he founded.
The Canadian branch of Vanguard came into existence in 2011, bringing low-cost Exchange-Traded Funds (ETFs) to Canadians who had little competitive choice at the time for cheap ETFs. As per Vanguard, their foray into the ETF market in Canada has led to significant declines in ETF Management Expense Ratio (MER), in what is referred to as the “Vanguard Effect.” They believe they have saved investors more than $3.2 million in fees.
Vanguard’s New Actively Managed Mutual Funds
While Vanguard can already boast of 39 ETF products in Canada and over $19 billion in assets, you can now add four new actively managed mutual funds to their suite of product offerings. The new mutual funds are:
1. Vanguard Global Balanced Fund (VIC100)
The Vanguard Global Balanced Fund is designed to provide investors with long-term capital growth combined with some current income. The fund’s asset holdings are globally-diversified and allocated at approximately 65% Equity (stocks) and 35% fixed-income. It is sub-advised by Wellington Management Canada ULC.
2. Vanguard Global Dividend Fund (VIC200)
Vanguard’s Global Dividend Fund is designed to invest primarily in dividend-paying stocks of companies from around the world and will provide investors with a combination of income and capital growth. At least 80% of the fund’s assets will be invested in dividend stocks. The fund is sub-advised by Wellington Management Canada ULC and The Vanguard Group, Inc.
3. Vanguard US Value Windsor Fund (VIC300)
The Vanguard U.S. Value Windsor Fund is designed to provide investors with long-term capital appreciation and income by investing in undervalued (value stocks) mid- to large-capitalization companies located in the US. The fund is sub-advised by Wellington Management Canada ULC, Pzena Investment Management, LLC, and The Vanguard Group, Inc.
4. Vanguard International Growth Fund (VIC400)
Vanguard’s International Growth Fund is designed to provide investors with long-term capital appreciation by investing in international stocks (outside Canada and the US) of growth companies. This fund is sub-advised by Baillie Gifford Overseas Limited, Schroeder Investment Management North America Inc., and The Vanguard Group, Inc.
How To Buy Vanguard’s Mutual Funds in Canada
The new mutual funds will be available as Series F and can be purchased by investors who are clients of fee-based financial advisors. Under a fee-based arrangement, investors pay their financial advisor a defined fee that does not include embedded commissions or trailer fees. The mutual funds can also be accessed by self-directed (DIY) investors through a discount brokerage (currently, Questrade and Qtrade Investor).
An initial minimum investment of $5,000 is required for the Series F, followed by a minimum subsequent investment of at least $100. There are also funds available as Series I that are meant for institutional investors.
What Are The Management Fees?
The main selling point of these new active mutual funds by Vanguard is the low fees. This is because fees are a big deal especially when active management is concerned. The maximum management fee that will be charged on these funds is 0.50%! The proposed first-year fees are even lower, at 0.40% or less.
*These fees do not include applicable taxes or other fees and expenses of the Vanguard fund.
These fees are a far cry (much lower) from the average mutual fund fees in Canada. In fact, Canada received a bottom grade in 2017 for having the highest mutual fund fees in the world at an average of 2.23% per annum for equity mutual funds!
The fee structure Vanguard is proposing also adds an extra layer to protect investors from paying fees for naught. If the fund does not perform as expected relative to its benchmark index, the management fee paid to sub-advisors is reduced (so you pay less than 0.50%). If the fund outperforms its benchmark, they are paid more. However, investor cost is capped at 0.50%.
What Accounts Are Eligible For Vanguard’s Mutual Funds?
The new mutual funds are eligible for investing in the main registered accounts including:
- And other non-registered investment accounts.
The hope is that these low-fee active mutual fund offerings by Vanguard will cause mutual fund fees to drop across board as competition in the mutual fund space heats up. If lower mutual fund fees translate to even more competition among financial institutions for investor funds, maybe even robo-advisors will be encouraged to cut their fees and drop them further. 😉
On the ETF side of things, Vanguard also recently introduced their “all-in-one” ETF portfolio solutions that are competitively priced at a management fee of 0.22% and which cater to investors with varying risk appetites. They include the: Vanguard Conservative ETF Portfolio (VCNS), Vanguard Balanced ETF Portfolio (VBAL), and Vanguard Growth ETF Portfolio (VGRO).