Vanguard Launches Second Assault on iShares

For the second time in as many weeks, Vanguard has launched a wave of broad market style-box ETFs aimed at unseating its largest rivals.  Vanguard declared war in its fight for ETF supremacy two weeks ago by targeting both SPDRs and iShares with the launch of nine ETFs covering the S&P index style boxes.  Today's (9/22/10) announcement consists of seven new ETFs squarely aimed at the Russell-indexed ETFs from BlackRock's iShares that have been on the market for more than ten years.

Once again, Vanguard has chosen not to try to differentiate its products based on unique investment strategies, new indexes, or being first to market.  Instead, it is challenging the competition head-on and differentiating its offerings by price and brand name.  Vanguard has wisely chosen to draw the battle lines where it has an advantage.

Vanguard Russell 1000 ETF (VONE) (VONE snapshot) has an expense ratio of 0.12% and will directly compete with iShares Russell 1000 (IWB), which has a 0.15% expense ratio and is currently the third largest ETF in the large cap blend category behind SPDR S&P 500 (SPY) and iShares S&P 500 (IVV).

Vanguard Russell 1000 Growth ETF (VONG) (VONG snapshot) has an expense ratio of 0.15% and will directly compete with iShares Russell 1000 Growth (IWF), which has a 0.20% expense ratio and is currently the second largest ETF in the large cap growth category behind PowerShares QQQ (QQQQ).

Vanguard Russell 1000 Value ETF (VONV) (VONV snapshot) has an expense ratio of 0.15% and will directly compete with iShares Russell 1000 Value (IWD), which has a 0.20% expense ratio and is the current asset leader in the large cap value category.

Vanguard Russell 2000 ETF (VTWO) (VTWO snapshot) has an expense ratio of 0.15% and will directly compete with iShares Russell 2000 (IWM), which has a 0.20% expense ratio and is the current asset leader in the small cap blend category.

Vanguard Russell 2000 Growth ETF (VTWG) (VTWG snapshot) has an expense ratio of 0.20% and will directly compete with iShares Russell 2000 Growth (IWO), which has a 0.25% expense ratio and is the current asset leader in the small cap growth category.

Vanguard Russell 2000 Value ETF (VTWV) (VTWV snapshot) has an expense ratio of 0.20% and will directly compete with iShares Russell 2000 Value (IWN), which has a 0.25% expense ratio and is the current asset leader in the small cap value category.

Vanguard Russell 3000 ETF (VTHR) (VTHR snapshot) has an expense ratio of 0.15% and will directly compete with iShares Russell 3000 (IWV), which has a 0.20% expense ratio and is currently the second largest ETF in the total U.S. market category behind Vanguard Total Stock Market ETF (VTI).

Russell style-box indexes tend to be favored over similar indexes from S&P by ETF investors seeking to control style-box allocations within their portfolios.  As a result, the existing iShares Russell ETFs are the asset leaders in most of these categories, with combined assets for the seven ETFs currently around $45 billion.

Vanguard chose to not bring the all-cap Russell 3000 Growth and Russell 3000 Value ETFs to market.  Their reasoning was not declared, but I would suspect the relatively low assets of less than $300 million each in iShares Russell 3000 Growth (IWZ) and iShares Russell 3000 Value (IWW) is the primary factor.

Photo credit:  Norm Ringuette from mock cannon battles at Holland Point, Victoria British Columbia

Disclosure covering writer, editor, and publisher:  Long IVV.   No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.