Vanguard’s ETFs Returned a Substantial Proportion of Their Expenses to Investors

Abstract

How much of a difference do smart trading strategies, stock choice, and lending securities to short sellers reduce the net expenses of Vanguard’s index ETFs below their reported expense ratios? Using Vanguard’s reported returns for their index ETFs and their benchmarks I discover the return difference is of moderate importance for large portfolios and statistically significant. For example, for a million-dollar portfolio, calculations show annual differences ranging from of $120 to $4,040. While the range is huge, intriguingly the whole range is positive.

Keywords: Vanguard Index ETFs, Expense ratios, Turnover

JEL Classification: G11, G14