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Investing Specialists

Vanguard Expense Ratios Increase

Falling assets lead to higher fees at some funds, but they're still cheap.

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Hell has frozen over, or at least gotten a little chilly. Vanguard has increased expense ratios on many of its funds.

The family long renowned for the rock-bottom expense ratios of its index and actively managed funds couldn't escape the tortuous market of the past 18 months. Although, as a firm, Vanguard has been one of the few families to consistently attract new money and avoid layoffs throughout the turmoil, market depreciation has taken a toll on assets under management in many of its funds. Some individual funds also have seen outflows. Total assets under management have dropped from $1.3 trillion at the end of 2007 to a little less than $1 trillion as of Feb. 29, 2009. The more than $300 billion contraction caused the firm to cut costs by, among other things, slashing its 2008 employee bonus pool in half and being more selective about hiring. More pertinent to fund owners, it also has caused expense ratios of many funds to increase.

To Vanguard's credit, it has chosen to disclose the higher expense ratios in the 2009 prospectuses that have been rolling out this year. Annual reports, and often prospectuses, are backward-looking, listing the fees levied in the previous fiscal year. This year Vanguard decided to print in its prospectuses the expenses "being deducted from current fund assets," according to recent prospectuses, to give investors a heads-up.

Dan Culloton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.