Vanguard brings low-cost ETFs to Britain

LONDON (Reuters) - U.S. group Vanguard, the world's third-largest exchange-traded-funds provider, has launched its first products in Britain, hoping to steal business from rivals by pushing a low-cost model that has been successful in its home market.

"In the U.S., ETFs are a very large part of our business and account for a significant amount of new cash flow," Nick Blake, head of retail at Vanguard Asset Management told Reuters.

"The key thing is about access ... They are just another way to index with many more ways to access."

Vanguard Asset Management, a subsidiary of Vanguard, will list five ETFs on the London Stock Exchange (LSE.L).

ETFs -- funds tracking baskets of shares, bonds or commodities that are traded like stocks -- have become increasingly popular among investors seeking cheap access to indexes without having to buy the underlying securities.

Vanguard launched its first index funds in Europe in June 2009 and has assets under management of around $65 billion (40 billion pounds), of which $4 billion is in Britain.

It is hoping to replicate the success of its U.S. ETF business. Total expense ratios (TERs) for its new ETFs, including a FTSE 100, S&P 500 and British government bond product, will be priced at 0.09-0.45 percent, compared with an industry average TER in Britain of 0.53 percent.

"We have been deliberately aggressive on price ... we would hope to see some transfer business," said Blake. "What we stand for is putting healthy competition in the market ... we still think there is further to go in terms of driving down prices."

Vanguard will compete on price with well-established providers in Europe including BlackRock's (BLK.N) iShares and investment banks such as Societe Generale (SOGN.PA) and Deutsche Bank (DBKGn.DE), who own ETF arms Lyxor and db x-trackers.

In the United States, other ETF providers have responded to Vanguard's low-cost products by slashing costs.

THE VANGUARD EFFECT

Although relative latecomers to the industry, of Vanguard's $2 trillion assets worldwide, $175 billion are in ETFs mostly in the United States and also in Australia, Canada and Mexico following a recent surge in inflows over the past few years as the asset manager slashed fees.

This year, Vanguard ETFs have attracted nearly $22 billion inflows, ahead of closest rivals BlackRock and State Street Global Advisors (STT.N), who drew in $13.3 billion and $7.2 billion respectively, ETF Industry Association data showed.

Total ETF assets globally reached $1.5 trillion at the end of April, of which the United States accounted for two thirds with Europe on around $290 billion, data from ETF Global Insight estimated.

Vanguard's new ETFs have been registered in Ireland and will be launched pending approval by the LSE, with hopes to expand listings across Europe later in the year, Blake said.

(Reporting By Anjuli Davies; Editing by Dan Lalor)