TOKYO (Bloomberg) — Vanguard Group, the world's second-largest mutual fund company, said it will start offering its mutual funds to individual investors in Japan by the end of the third quarter.
The U.S. company said it will sell its Vanguard 500 Index Fund, one the world's three largest mutual funds, and the Vanguard Small-Cap Index Fund through Japanese online broker Monex Inc., an affiliate of Sony Corp.
"The funds will be available through our low investment management costs and their (Monex's) low account servicing costs" said Shelton Unger, head of international business development for Vanguard.
The company said it plans to offer its funds for fees about one-third lower than is standard in Japan.
Total costs, as measured by expense ratios and account service fees, will range from 0.88 percent to 0.95 percent initially, well below the typical average fund management fee of approximately 1.5 percent in Japan, Unger said.
Based in Valley Forge, Pennsylvania, Vanguard has more than $560 billion in assets under management. It sells 109 funds in the U.S. and 33 other countries, and has more than $240 billion in index assets worldwide.
Monex is an online brokerage set up by former Goldman, Sachs & Co. partner Oki Matsumoto. It counts Sony and three U.S. hedge funds, including Soros Fund Management LLC, as shareholders and plans to sell shares to the public on the Tokyo Stock Exchange's "Mothers" section in August.
Vanguard's move to enter the Japanese market follows other foreign banks like Merrill Lynch & Co. and Fidelity Investment Japan Ltd., as the value of Japanese mutual funds in May, at 58.61 trillion yen ($551 billion), was the highest since the height of Japan's stock market bubble in 1989.
"Forty-five percent of all mutual fund investments are outside the U.S., so we took a universal approach," by entering Japan, said Unger. "The fact that the Internet is here is very attractive to us from a low-cost standpoint."
The company first expanded overseas when it entered the Australian market in 1996. Two years ago, Vanguard began offering funds in the European market and now has about $375 million under management.
One of the reasons why Vanguard chose to offer its two most popular funds in Japan was because they believe it will allow Japanese investors "to get exposed to the U.S. market," according to Unger.
"S&P 500 represents about 75 percent of the U.S. stock market and the small-cap (fund) is a nice complement to that," said Unger, adding that Matsumoto, the president of Monex, strongly requested those two funds.
Vanguard 500 Index, with total assets of $102.8 billion as of May 31, tracks the S&P 500 Index and the Vanguard Small-Cap Index tracks the Russell 2000 Index. The two funds have outperformed 90 percent of all general equity funds in the U.S., according to Unger.