{"id":7732,"date":"2017-08-16T12:05:34","date_gmt":"2017-08-16T19:05:34","guid":{"rendered":"http:\/\/canary.kcprod.info/blog\/?p=7732"},"modified":"2022-01-11T17:12:28","modified_gmt":"2022-01-12T01:12:28","slug":"new-etf-block","status":"publish","type":"post","link":"https:\/\/canary.kcprod.info/blog\/new-etf-block\/","title":{"rendered":"The New ETF on the Block"},"content":{"rendered":"

At Wealthfront we take pride in lowering our clients\u2019 expenses wherever possible. As our Chief investment Officer Burt Malkiel likes to say, there\u2019s nothing like saving fees because it represents a guaranteed increase in returns. So today we\u2019re excited to announce we have replaced our Municipal Bond ETF with a lower cost alternative, Vanguard\u2019s Tax-Exempt Bond ETF (ticker symbol VTEB<\/a>).<\/p>\n

One of the most overlooked services we provide is the careful selection of ETFs. For us it\u2019s not good enough to just select the right investment mix; we need to identify the ideal ETF to represent each asset class to maximize our clients\u2019 risk adjusted returns. As we explained previously<\/a>, we select ETFs based on their fee, liquidity, tracking error (how well they track their intended index) and securities lending policy. It might be surprising that the lowest cost fee ETF isn\u2019t necessarily the best one if the shares are not readily available. If that\u2019s the case, then our attempt to purchase or sell an ETF with limited liquidity could impact the price we pay, and therefore it doesn\u2019t provide the economic benefit you might expect.<\/p>\n

That said, we are always on the lookout for ETFs with lower fees than the ones we currently use, like BlackRock\u2019s MUB<\/a>. In August 2015, Vanguard announced the availability of a new ETF called Tax-Exempt Bond ETF, or VTEB, that tracks the same S&P National AMT-Free Tax Exempt Bond index as BlackRock\u2019s MUB, except with a much lower management fee (0.09% vs. 0.25%). However, we didn\u2019t immediately move to VTEB because it didn\u2019t have the trading volume necessary to support the aggregate needs of our clients\u2019 portfolios. But because the liquidity of compelling ETFs generally improves over time, VTEB is now a viable alternative for us.<\/p>\n

As a result, we started to use VTEB last week instead of MUB for all new clients. We won\u2019t move existing clients\u2019 MUB holdings to VTEB until a tax-loss harvesting event presents itself, as the taxes associated with selling MUB at a profit do not justify the management fee savings with VTEB. Again, it\u2019s not only about seeking out the ETFs with the best individual characteristics. We need to do what\u2019s best for your portfolio on a net of fee after tax<\/em> risk adjusted return. Hence we are keeping existing clients with MUB for now.<\/p>\n

By moving to VTEB our weighted average ETF management fee for our standard portfolios is now less than 0.10%. That\u2019s significant when compared to acquiring similar portfolios that contain ETFs from other financial advisors. Based on the Investment Company Institute<\/a>, the high end (90th percentile) fund management fees for a similar portfolio come in at a whopping 82 basis points (0.82%), and that does not include the average advisory fee of 1.00%<\/a>. The median cost is 39 basis points (0.39%), and on the low end (10th percentile) 12 basis points (0.12%). In all competitive scenarios Wealthfront remains one of the most cost effective.<\/p>\n

The integration of VTEB means we\u2019ve now been able to lower the average ETF management fee for our clients over 50 times since we launched our service in December 2011. Some of the benefit resulted from swapping in lower cost ETFs and the remainder came from issuers like Vanguard constantly lowering their fees over time. As we explained in Why we avoid BlackRock ETFs<\/a>, Vanguard is able to lower their fees because index based ETFs are a commodity product and their business model allows them to pass along their cost savings as they attract more capital under management. We\u2019ll continue to take advantage of the capital flows into passive ETFs to provide our clients with what we believe are the best portfolios possible.<\/p>\n","protected":false},"excerpt":{"rendered":"

At Wealthfront we take pride in lowering our clients\u2019 expenses wherever possible. As our Chief investment Officer Burt Malkiel likes to say, there\u2019s nothing like saving fees because it represents a guaranteed increase in returns. So today we\u2019re excited to announce we have replaced our Municipal Bond ETF with a lower cost alternative, Vanguard\u2019s Tax-Exempt […]<\/p>\n","protected":false},"author":4,"featured_media":7647,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"footnotes":""},"categories":[1315,1282],"tags":[1298,1296,2238,1324,2239],"coauthors":[99],"class_list":["post-7732","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-industry-insights","category-investing","tag-etfs","tag-fees","tag-lower-fees","tag-vanguard","tag-vteb"],"acf":[],"yoast_head":"\nThe New ETF on the Block | Wealthfront<\/title>\n<meta name=\"description\" content=\"Today we\u2019re excited to announce we have replaced our Municipal Bond ETF with a lower cost alternative, Vanguard\u2019s Tax-Exempt Bond ETF (ticker symbol VTEB).\" \/>\n<meta name=\"robots\" content=\"index, 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