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Tuesday, August 09, 2016

The Billion-Dollar Share Class

News summary by MFWire's editors

Bill McNabb and his team have created what may be the most institutional mutual fund share class ever.

Frederick William McNabb III
The Vanguard Group, Inc.
Chief Executive Officer, President, Chairman of the Board of Directors
Earlier this summer Vanguard [profile] launched "Institutional Select" shares for six of its index funds. Those shares, Daisy Maxey of the Wall Street Journal points out, require minimum investments of $3 billion to $5 billion, and offer expense ratios ranging from 1.0 to 4.5 basis points.

Vanguard's existing "Institutional Plus" shares, by comparison, cost at least 2.0 bps and have minimums ranging from $100 million to $200 million. That share class debuted in 1995.

The low-cost mutual fund titan is "currently transitioning institutional clients -- mostly defined contribution plans -- into the new share classes," the WSJ reports. Indeed, the asset figures for the institutional select versions of the six Vanguard funds haven't yet hit those minimum investment numbers in overall AUM. The biggest, the Vanguard 500 Index Fund Institutional Select Shares, had $2.8 billion as of June 30. The other five funds with institutional select shares offered so far are: the Vanguard Total Bond Market Index Fund, the Vanguard Total Stock Market Index Fund, the Vanguard Total International Stock Index Fund, and the Vanguard Total International Bond Index Fund.

Morningstar analyst Kevin McDevitt and Independent Adviser for Vanguard Investors editor Daniel Wiener both weighed in on the share class. Wiener reportedly commented that institutional shares are "really about bragging rights," while McDevitt argued that the price different is not "entirely insignificant, either." 

Edited by: Neil Anderson, Managing Editor


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