Find out more about our range of low-cost, uncomplicated ETFs.
Commentary by David Hsu, senior equity index and ETF product specialist, Vanguard Europe.
No matter what kind of exposure investors are seeking, exchange-traded funds (ETFs) can offer low-cost, liquid access to diversified indices, with full and regularly updated transparency on constituents, performance and costs. These qualities have made them arguably the most dynamic new investment product coming to the market in the last two decades.
For an asset class as deep and diverse as equities, ETFs can offer investors far greater exposure than they would otherwise be able to achieve on their own. For example, someone investing in the Vanguard FTSE All-World UCITS ETF would gain coverage of over 4,000 large- and medium-sized companies spread across 50 countries, spanning both developed and emerging markets.
But what makes a good equity ETF? In a universe where there are 1,993 European ETFs1 available to investors, the nuance of process and variety of coverage is almost infinite. The choice can be overwhelming.
The first question you should ask is whether an equity ETF is actually giving you the tight index-tracking exposure you think it is. Replicating a market as compact as the FTSE 100 is more straightforward, but what if you are looking at a globally diverse index? The cost of reproducing it on a stock-by-stock basis would be prohibitive. Here, the key is how efficiently your ETF aligns itself with its ever-evolving index.
Cost is the other critical variable. An ETF that can’t efficiently manage and respond to the constant daily index changes will inevitably be more expensive, which in the long run could markedly erode returns and defeat the objective of investing in an ETF in the first place. Effectively navigating such changes and maintaining minimal tracking error in an ETF requires timely but considered corresponding trades.
Vanguard has developed its expertise on how to deliver value to investors in these areas over decades as we were the first to bring ETF investing to the mass market in the US in 2001.
We devote significant resources to investing in and supporting our portfolio managers and the trading process. Our global platform uses the most up-to-date technology and tools in an effort to keep up with evolving markets. Our size also facilitates economies of scale through high trading volumes, allowing us to drive down broker costs and keep overall charges low.
Being global is arguably as important in managing ETFs as it is in active funds. With desks in the US, UK and Australia, we can leverage both global and local broker relationships to enhance our trading execution and to lower costs for our investors. In addition to broker relationships, we maintain our engagement with local regulators, exchanges and industry groups to bring about positive market structure-related changes in our respective regions.
Another aspect of Vanguard is that our portfolio managers are also traders for our ETFs. The trading and portfolio management functions are integrated into one team, which is especially important when we manage and trade upcoming index rebalances, corporate actions and daily cash flows. We seek to minimise tracking error to the benchmark while at the same time limiting the fund’s transaction costs.
The value to be gained by trading ETFs efficiently should also not be overlooked. By choosing Vanguard, you will have access to the insight of our ETF Capital Markets Team, who can help you achieve the best possible execution experience when trading our funds.
A good equity ETF has to be of a sufficiently large size in terms of assets under management—usually around $10 million—to help ensure sufficient liquidity and tight spreads. It is also advisable to check trading volumes as those which trade infrequently could be less easy to sell. Finally, keep a firm eye on tracking error. If your ETF deviates too far from your chosen index then it is not performing its advertised role, thereby potentially delivering unexpected results and unbalancing your portfolio.
1 Source: ETFGI as at 31 July 2022.
Investment risk information
The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.
Some funds invest in emerging markets which can be more volatile than more established markets. As a result the value of your investment may rise or fall.
Investments in smaller companies may be more volatile than investments in well-established blue chip companies.
ETF shares can be bought or sold only through a broker. Investing in ETFs entails stockbroker commission and a bid- offer spread which should be considered fully before investing.
Funds investing in fixed interest securities carry the risk of default on repayment and erosion of the capital value of your investment and the level of income may fluctuate. Movements in interest rates are likely to affect the capital value of fixed interest securities. Corporate bonds may provide higher yields but as such may carry greater credit risk increasing the risk of default on repayment and erosion of the capital value of your investment. The level of income may fluctuate and movements in interest rates are likely to affect the capital value of bonds.
The Funds may use derivatives in order to reduce risk or cost and/or generate extra income or growth. The use of derivatives could increase or reduce exposure to underlying assets and result in greater fluctuations of the Fund's net asset value. A derivative is a financial contract whose value is based on the value of a financial asset (such as a share, bond, or currency) or a market index.
Some funds invest in securities which are denominated in different currencies. Movements in currency exchange rates can affect the return of investments.
For further information on risks please see the “Risk Factors” section of the prospectus on our website at https://global.vanguard.com.
This is a marketing communication.
For professional investors only (as defined under the MiFID II Directive) investing for their own account (including management companies (fund of funds) and professional clients investing on behalf of their discretionary clients). In Switzerland for professional investors only. Not to be distributed to the public.
For further information on the fund's investment policies and risks, please refer to the prospectus of the UCITS and to the KIID before making any final investment decisions. The KIID for this fund is available in local languages, alongside the prospectus via Vanguard’s website https://global.vanguard.com/
The information contained in this document is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The information in this document does not constitute legal, tax, or investment advice. You must not, therefore, rely on the content of this document when making any investment decisions.
For Swiss professional investors: Potential investors will not benefit from the protection of the FinSA on assessing appropriateness and suitability.
Vanguard Funds plc has been authorised by the Central Bank of Ireland as a UCITS and has been registered for public distribution in certain EEA countries and the UK. Prospective investors are referred to the Funds' prospectus for further information. Prospective investors are also urged to consult their own professional advisers on the implications of making an investment in, and holding or disposing shares of the Funds and the receipt of distributions with respect to such shares under the law of the countries in which they are liable to taxation.
The Manager of Vanguard Funds plc is Vanguard Group (Ireland) Limited. Vanguard Asset Management, Limited is a distributor for Vanguard Funds plc.
The Manager of the Ireland domiciled funds may determine to terminate any arrangements made for marketing the shares in one or more jurisdictions in accordance with the UCITS Directive, as may be amended from time-to-time.
The Indicative Net Asset Value (“iNAV”) for Vanguard’s ETFs is published on Bloomberg or Reuters. Refer to the Portfolio Holdings Policy athttps://global.vanguard.com/portal/site/portal/ucits-documentation for holdings information.
For investors in Ireland domiciled funds, a summary of investor rights can be obtained via https://www.ie.vanguard/content/dam/intl/europe/documents/en/vanguard-investors-rights-summary-irish-funds-jan22.pdf and is available in English, German, French, Spanish, Dutch and Italian.
London Stock Exchange Group companies include FTSE International Limited ("FTSE"), Frank Russell Company ("Russell"), MTS Next Limited ("MTS"), and FTSE TMX Global Debt Capital Markets Inc. ("FTSE TMX"). All rights reserved. "FTSE®", "Russell®", "MTS®", "FTSE TMX®" and "FTSE Russell" and other service marks and trademarks related to the FTSE or Russell indexes are trademarks of the London Stock Exchange Group companies and are used by FTSE, MTS, FTSE TMX and Russell under licence. All information is provided for information purposes only. No responsibility or liability can be accepted by the London Stock Exchange Group companies nor its licensors for any errors or for any loss from use of this publication. Neither the London Stock Exchange Group companies nor any of its licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the FTSE or Russell indexes or the fitness or suitability of the indexes for any particular purpose to which they might be put.
For Dutch investors only: The fund(s) referred to in this document are listed in the AFM register as defined in section 1:107 Dutch Financial Supervision Act (Wet op het financieeltoezicht). For details of the Risk indicator for each fund listed in this document, please see the fact sheet(s) which are available from Vanguard via our websitehttps://www.vanguard.nl/portal/instl/nl/en/product.html.
For Swiss professional investors: The Manager of Vanguard Funds plc is Vanguard Group (Ireland) Limited. Vanguard Investments Switzerland GmbH is a financial services provider, providing services in the form of purchase and sales according to Art. 3 (c)(1) FinSA. Vanguard Investments Switzerland GmbH will not perform any appropriateness or suitability assessment. Furthermore, Vanguard Investments Switzerland GmbH does not provide any services in the form of advice. Vanguard Funds Series plc has been authorised by the Central Bank of Ireland as a UCITS. Prospective investors are referred to the Funds' prospectus for further information. Prospective investors are also urged to consult their own professional advisors on the implications of making an investment in, and holding or disposing shares of the Funds and the receipt of distributions with respect to such shares under the law of the countries in which they are liable to taxation. Vanguard Funds plc has been approved for offer in Switzerland by the Swiss Financial Market Supervisory Authority (FINMA). The information provided herein does not constitute an offer of Vanguard Funds plc in Switzerland pursuant to FinSA and its implementing ordinance. This is solely an advertisement pursuant to FinSA and its implementing ordinance for Vanguard Funds plc. The Representative and the Paying Agent in Switzerland is BNP ParibasSecurities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich. Copies of the Articles of Incorporation, KIID, Prospectus, Declaration of Trust, By-Laws, Annual Report and Semiannual Report for these funds can be obtained free of charge from the Swiss Representative or from Vanguard Investments Switzerland GmbH via our websitehttps://global.vanguard.com
Issued in EEA by Vanguard Group (Ireland) Limited which is regulated in Ireland by the Central Bank of Ireland.
Issued in Switzerland by Vanguard Investments Switzerland GmbH.
Issued by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Conduct Authority.
© 2022 Vanguard Group (Ireland) Limited. All rights reserved.
© 2022 Vanguard Investments Switzerland GmbH. All rights reserved.
© 2022 Vanguard Asset Management, Limited. All rights reserved.