Vanguard saves $5m in trading costs
Friday, 12 September 2008 12:55pm
True to the adage ‘timing is everything', index manager Vanguard saved investors over $5 million in reduced transactions costs this year through ‘crossing savings'.
A ‘crossing' or a ‘special spread' saving occurs when Vanguard fund uses the cash invested by a ‘new' client to meet client redemptions received at the same time. This way the buy and sell spreads that both clients incur are lower than if their trades aren't matched.
"For example, if you look at our International Shares fund, the investor would normally pay 30bp in a spread and the seller normally pays 10bp - we can net those costs out so that both of them pay less [in spreads]," said Ian Alcock, head of Vanguard Australia.
The strategy is not new. Alcock said Vanguard Australia adopted the practice back in 2000 and other major fund managers also adopt a similar approach.
But what the $5 million-plus savings highlight, said Alcock, is that there's real money to be made simply by arranging a transaction on certain dates.
"We create special days…we try to communicate with our clients when those special days are. And we don't make money out of doing that, we just think it's one way to help our clients," said Alcock.
In general, institutional investors can avail of the lower transaction costs where there are applications and withdrawals of $500,000 or more.
This year, the monthly crossing days that institutions should take advantage of are September 16, October 20, November 17 and December 15.
Michelle Baltazar
