Investors Pour Into Vanguard, Eschewing Stock Pickers

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mlebuf
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Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by mlebuf »

That's the title of a new article in The Wall Street Journal. A few highlights:

Investors are pouring money into Vanguard Group, the epitome of the hands-off approach to investing...The inflow has pushed the mutual-fund giant to almost $3 trillion in assets under management for the first time...The surge is part of a sea change in the fund business in which investors are increasingly opting for products that track the market rather than relying on managers to pick winners...Vanguard got a huge boost this spring when Warren Buffett gave it a public stamp of approval in March...In an email to Mr. Buffett, Vanguard's retired founder, John C. "Jack" Bogle, said financial advisers were describing Mr. Bogle as only "the second best salesman at Vanguard." :D

For those who subscribe to WSJ: http://online.wsj.com/articles/investor ... Collection

Thank you, Jack Bogle, for teaching us the majesty of simplicity in investing and providing us with the vehicle to make it possible.
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by bondsr4me »

Read it this morning with my coffee and muffin!
Great article; just another affirmation about not bothering with stock pickers.
Everyone have a great day,
Don
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by nisiprius »

I actually find this just a little bit troubling. No, I am not someone who sells active funds using the "what if everybody indexed" talking point, but I do worry about "will success spoil Vanguard?" Jack Bogle has a essay, is it in "Clash of the Cultures?" about the rise and fall of six or seven fund companies into and out of positions of dominance. Vanguard deserves its success and I'm glad to see them getting it, but it's never healthy for a single company to dominate an industry.

And, of course, call me conspiracy theorist, but yes, I have wondered whether envious rivals could be assisting Danon's lawsuit against Vanguard.
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by pingo »

I'm a huge fan, but I also find it unsettling at times to watch as Vanguard become the Juggernaut. There's a contest inside of me between the enthusiast and the contrarian. It's not actionable, investible information, so I stay the course...
Last edited by pingo on Thu Aug 21, 2014 4:00 pm, edited 4 times in total.
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by linenfort »

bondsr4me wrote:Read it this morning with my coffee and muffin!
Great article; just another affirmation about not bothering with stock pickers.
Everyone have a great day,
Don
Me, too, sans muffin. Great way to start the day: sunrise, coffee and this article.
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by Levett »

"Eschew."

Now that's how I like to start my day!

I can chew on that one. ;-)

RE Pingo's comment--e.g., "contest inside of me between the enthusiast and the contrarian."

My solution remains to divide the risk portfolio between Active Lite and Index.

I, too, get twitchy about Vanguard's growing size.

Lev
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by Gropes & Ray »

Hopefully Vanguard's success will inspire competitors to take a more Vanguard-like approach. I think Fidelity does a good job, but I would love to get that e/r lower and lower.

I'm not concerned about too much indexing. There are too many people who want to pick stocks or use managed funds for a variety of reasons.
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by Grt2bOutdoors »

Gropes & Ray wrote:Hopefully Vanguard's success will inspire competitors to take a more Vanguard-like approach. I think Fidelity does a good job, but I would love to get that e/r lower and lower.

I'm not concerned about too much indexing. There are too many people who want to pick stocks or use managed funds for a variety of reasons.
Fidelity's model is quite different than that of Vanguards. Fidelity wants to be a one stop shop supermarket for financial services and it exists to serve only one master - the Johnson Family. Vanguard's funds are owned by it's shareholders.

I also saw the article this morning on my commute (no muffin).
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by Sheepdog »

MarketWatch has a short version of the WSJ aticle http://www.marketwatch.com/story/invest ... =rss&rss=1
What concerns me with the Vanguard growth is not the money as much but will Vanguard's customer service (facilities and staff training) grow with it.
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by Gropes & Ray »

Grt2bOutdoors wrote:Fidelity's model is quite different than that of Vanguards. Fidelity wants to be a one stop shop supermarket for financial services and it exists to serve only one master - the Johnson Family. Vanguard's funds are owned by it's shareholders.
Sure, but they do offer low cost index funds, which is ultimately what I'm after. I doubt another company could emerge with the same structure as Vanguard, just because it would require someone to sacrifice the huge earnings that investment managers can make. I saw once that Bogle's net worth is in the "low tens of millions." A fortune, to be sure, but much less that he might have made in other circumstances.
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by toto238 »

Gropes & Ray wrote:
Grt2bOutdoors wrote:Fidelity's model is quite different than that of Vanguards. Fidelity wants to be a one stop shop supermarket for financial services and it exists to serve only one master - the Johnson Family. Vanguard's funds are owned by it's shareholders.
Sure, but they do offer low cost index funds, which is ultimately what I'm after. I doubt another company could emerge with the same structure as Vanguard, just because it would require someone to sacrifice the huge earnings that investment managers can make. I saw once that Bogle's net worth is in the "low tens of millions." A fortune, to be sure, but much less that he might have made in other circumstances.
Bogle could've made billions. Instead he chose to make a difference. :-)
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by cfs »

Thank you.

Thanks for the conversation. I read the article this morning after my Lung Distance Run (lung is not a typo).

Thanks for reading.
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by Exterous »

Sheepdog wrote:What concerns me with the Vanguard growth is not the money as much but will Vanguard's customer service (facilities and staff training) grow with it.
I wonder about this too. Anecdotal to be sure but we had to move my wife's 403b from Vanguard when she changed jobs and the first couple of people at Vanguard we dealt with were an absolute mess to work with; wrong forms, missing forms, wrong information etc. It did make me wonder if training, esp for less common investment vehicles, was starting to suffer.
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by SimpleGift »

Looking at mutual fund flows over the past seven years, there appears to be a steady and relentless march out of actively-managed funds and into indexed mutual funds and ETFs. It seems a historic shift in investor attitudes is underway.

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Source: 2014 Investment Company Fact Book
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by spectec »

Eschew Stock Pickers
Eschew Obfuscation

Ah, but I repeat myself

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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by Gropes & Ray »

toto238 wrote:Bogle could've made billions. Instead he chose to make a difference. :-)
Without getting sentimental about it, this is almost certainly true. I don't know if another person by Bogle would have done what he did. It took a truly principled a noble stance to say "I'm a fiduciary, and I will conduct myself as such."
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by abuss368 »

I did read this article earlier and was ready to post to the forum but I noted a thread was already started.

$3 TRILLION in assets, the largest fund with Total Stock Market Index, and more in bond assets than PIMCO. This is incredible and the growth has been beyond huge since the financial crisis.

I would like to see competitors change their organizational structure to something like Vanguard's in an attempt to provide more competition and also to benefit investors overall. Competition is good.

At the end of the day I would like to say "Thank you Jack Bogle!"
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by Gropes & Ray »

abuss368 wrote:I would like to see competitors change their organizational structure to something like Vanguard's in an attempt to provide more competition and also to benefit investors overall. Competition is good.
It's probably not possible to change the organizational structure of the other existing investment companies. They would have to buy back all of their shares and then distribute them to their funds. But, Vanguard does force them to lower their E/Rs in order to compete in index funds, which is great.

Starting a new company that follows Vanguard's organizational structure is also unlikely because they wouldn't have the bargaining power that Vanguard has to drive down E/Rs. The good news is, Vanguard still seems to be committed to lowering costs, even in the post-Bogle era.
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by Sheepdog »

Simplegift wrote:
Source: 2014 Investment Company Fact Book
Thank you for that link. That is very interesting reading on stock, bond and target mutual fund investing trends
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by TareNeko »

Could this all be happening because of the strong bull market? I wonder if people are jumping on board seeing that S&P 500 doubled its value during the last 5 years (actually ~2.5x w/ dividends re-invested). Will they stay on board when the next big correction comes?
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by Leeraar »

I think all investment advisers should be quaking in their boots. Companies like Wealthfront and Betterment will derail their gravy train.

I do not think that existing mutual fund companies can respond to Vangaurd. The best they can do is have some low-cost index funds that are loss leaders to prevent some customers from jumping ship.

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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by ResearchMed »

Vanguard does have some actively managed funds.
(A couple of the managed equity funds have done quite well, and seem to be continuing nicely.)

Any idea what percentage of the total money invested at Vanguard is in "index" vs. "managed" funds?
Or whether that percentage has changed much over time?

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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by toto238 »

Leeraar wrote:I think all investment advisers should be quaking in their boots. Companies like Wealthfront and Betterment will derail their gravy train.

I do not think that existing mutual fund companies can respond to Vangaurd. The best they can do is have some low-cost index funds that are loss leaders to prevent some customers from jumping ship.

L.
There will always be a place in the industry to take advantage of low-information investors who don't know any better. Unless it's made illegal.

An interesting proposal I've heard is to apply the same qualifications for investing in hedge funds ($200k income or $1mil net worth) to actively managed funds. Anyone who doesn't qualify as a sophisticated investor by that standard should be restricted to index funds with below 0.5% expense ratios and no loads/12b-1 fees.
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by LongerPrimer »

No wonder why some stocks should be going flat to declining but are slightly increasing. I stay away from the big stocks because of equity mutual funds are forced to buy and hold them because of their parties' capitalizations.
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by SimpleGift »

Erhan wrote:Could this all be happening because of the strong bull market? I wonder if people are jumping on board seeing that S&P 500 doubled its value during the last 5 years (actually ~2.5x w/ dividends re-invested). Will they stay on board when the next big correction comes?
If the experience of the 2008 financial crisis is any indication, indexing became more popular due to the crisis, rather than less popular. From an article by Larry Swedroe earlier this year:
Larry Swedroe wrote:Also of note is that the popularity of indexing rose after the 2007-2008 financial crisis - when active management failed on its "promise" of protecting investors from bear markets. While assets under management by active funds dropped during the financial crisis (from $7 trillion in 2007 to $6.2 trillion at the end of 2010), indexed assets actually grew over the crisis period (from $1.3 trillion to $1.7 trillion).
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by Jeff7 »

nisiprius wrote:I actually find this just a little bit troubling. No, I am not someone who sells active funds using the "what if everybody indexed" talking point, but I do worry about "will success spoil Vanguard?" Jack Bogle has a essay, is it in "Clash of the Cultures?" about the rise and fall of six or seven fund companies into and out of positions of dominance. Vanguard deserves its success and I'm glad to see them getting it, but it's never healthy for a single company to dominate an industry.

And, of course, call me conspiracy theorist, but yes, I have wondered whether envious rivals could be assisting Danon's lawsuit against Vanguard.
Money does interesting things to people, and people respond to incentives.

$3 trillion in assets? That's a pretty significant incentive for some interesting behavior.
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by cfs »

Protection during bear markets.

They will repeat it until you believe it.

Fun article by Steven Goldberg of Kiplingers (Why You Shouldn't Put All Your Money in Index Funds) dated 8/21/14. Here is this for you.
"In short, I think index funds have a place in virtually every portfolio. But, in my view, few portfolios should consist entirely of index funds.Why? Because index funds are designed to give you all the upside of bull markets and every bit of the downside of bear markets. Only good actively managed funds can protect you from some of the pain of a bear market."

"Only good actively managed funds can protect you from some of the pain of a bear market."

They will repeat it until you believe it.

Thanks for reading.
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by abuss368 »

Erhan wrote:Could this all be happening because of the strong bull market? I wonder if people are jumping on board seeing that S&P 500 doubled its value during the last 5 years (actually ~2.5x w/ dividends re-invested). Will they stay on board when the next big correction comes?
Hi Erhan,

That is an interesting observation. Let's see how the index growth holds up during the next downturn. Of course, we Bogleheads know better!
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by Jack FFR1846 »

I'm looking at fidelity's corp statistics page. It totals 4,7 T in customer assets. Does this include things that the Vanguard number doesn't?

"Other record kept and administered assets" is listed as over 2.7 T alone
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Post by Leesbro63 »

Darn, our secret's out!
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by abuss368 »

Jack FFR1846 wrote:I'm looking at fidelity's corp statistics page. It totals 4,7 T in customer assets. Does this include things that the Vanguard number doesn't?

"Other record kept and administered assets" is listed as over 2.7 T alone
Good question. Fidelity is into banking, etc. correct?
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by SimpleGift »

ResearchMed wrote:Any idea what percentage of the total money invested at Vanguard is in "index" vs. "managed" funds?
According to Morningstar, at the end of 2013, about 70% of Vanguard's assets were indexed and about 30% were actively-managed.
Morningstar wrote:The suburban Pennsylvania behemoth now manages $2.3 trillion in long-term funds and ETFs. Of that amount, 71% sits in indexed strategies where large scale helps to spread fixed costs. Vanguard passes these savings on to the fund investor. Still, 29% of assets, or $683 billion, resides in actively managed strategies, quietly placing the group as the third-largest manager of actively managed funds in Morningstar’s universe, behind only Fidelity and Capital Group (American Funds).
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by ResearchMed »

Simplegift wrote:
ResearchMed wrote:Any idea what percentage of the total money invested at Vanguard is in "index" vs. "managed" funds?
According to Morningstar, at the end of 2013, about 70% of Vanguard's assets were indexed and about 30% were actively-managed.
Morningstar wrote:The suburban Pennsylvania behemoth now manages $2.3 trillion in long-term funds and ETFs. Of that amount, 71% sits in indexed strategies where large scale helps to spread fixed costs. Vanguard passes these savings on to the fund investor. Still, 29% of assets, or $683 billion, resides in actively managed strategies, quietly placing the group as the third-largest manager of actively managed funds in Morningstar’s universe, behind only Fidelity and Capital Group (American Funds).
Thanks!

I wouldn't have guessed it was as much as 29%, especially since the biggies (total <market> funds) are indexed.

Was there a breakdown for equitiy vs. bond fund assets? Probably tricky, given the mixed funds, but it could be separated out.

RM
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by House Blend »

spectec wrote:Eschew Stock Pickers
Eschew Obfuscation

Ah, but I repeat myself
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by am »

Anyone find it troubling that indexing is becoming so popular? Wonder if this will somehow change the "market" if there are fewer stock pickers?
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by toto238 »

am wrote:Anyone find it troubling that indexing is becoming so popular? Wonder if this will somehow change the "market" if there are fewer stock pickers?
If too many people index, opportunites for arbitrage and successfully stock-picking increase. People will flock into there until all arbitrage opportunities are fulfilled. As long as the market is still free, it will happen automatically. So the market will never be 100% indexed.

As it is, the amount of money required to maintain an efficient market isn't a percentage of total invested assets. It's a percentage of total trade volume. So the percentage of the market that's indexed could be theoretically over 99% and the market would operate just fine. That is, as long as indexes are very rarely trading (which ideally, if everyone were in 100% market portfolios, would be the case).
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Post by SimpleGift »

ResearchMed wrote:Was there a breakdown for equity vs. bond fund assets? Probably tricky, given the mixed funds, but it could be separated out.
Sorry, RM, but Morningstar's annual reporting isn't quite that detailed, as best I know. I'm sure the data is out there somewhere, but I don't have ready access to it.
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by nisiprius »

ResearchMed wrote:
Simplegift wrote:
ResearchMed wrote:Any idea what percentage of the total money invested at Vanguard is in "index" vs. "managed" funds?
According to Morningstar, at the end of 2013, about 70% of Vanguard's assets were indexed and about 30% were actively-managed.
Morningstar wrote:The suburban Pennsylvania behemoth now manages $2.3 trillion in long-term funds and ETFs. Of that amount, 71% sits in indexed strategies where large scale helps to spread fixed costs. Vanguard passes these savings on to the fund investor. Still, 29% of assets, or $683 billion, resides in actively managed strategies, quietly placing the group as the third-largest manager of actively managed funds in Morningstar’s universe, behind only Fidelity and Capital Group (American Funds).
Thanks!

I wouldn't have guessed it was as much as 29%, especially since the biggies (total <market> funds) are indexed.

Was there a breakdown for equitiy vs. bond fund assets? Probably tricky, given the mixed funds, but it could be separated out.

RM
Dollars are hard, but counts are easy, using the check boxes on their "all our funds" age. Counting only "investor shares" and no limit on fund minimums, Vanguard says it has 114 funds total, 65 active. Thus by count, Vanguard actually has 57% active funds, 43% indexed. For stock funds only, meaning those they count as "stock," "international," and "sector'/speciality," and deducting 2 for the international bond funds... I get 54 total, 27 active, or precisely half-and-half.

And they're not tiny funds. Vanguard has quite a lot of substantial funds with billions of dollars in them that are not index funds. PRIMECAP, Wellesley, Wellington, Precious Metals and Mining, and a lot that don't get a lot of mention in this forum like Windsor II, $49 billion in that one. Fifty billion here, 6 billion there, pretty soon you're talking about real money. I don't really know what sort of investors own things like Windsor II and PRIMECAP, but if Vanguard didn't have any of its index funds it would still be a substantial mutual fund company.
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by toto238 »

nisiprius wrote:
ResearchMed wrote:
Simplegift wrote:
ResearchMed wrote:Any idea what percentage of the total money invested at Vanguard is in "index" vs. "managed" funds?
According to Morningstar, at the end of 2013, about 70% of Vanguard's assets were indexed and about 30% were actively-managed.
Morningstar wrote:The suburban Pennsylvania behemoth now manages $2.3 trillion in long-term funds and ETFs. Of that amount, 71% sits in indexed strategies where large scale helps to spread fixed costs. Vanguard passes these savings on to the fund investor. Still, 29% of assets, or $683 billion, resides in actively managed strategies, quietly placing the group as the third-largest manager of actively managed funds in Morningstar’s universe, behind only Fidelity and Capital Group (American Funds).
Thanks!

I wouldn't have guessed it was as much as 29%, especially since the biggies (total <market> funds) are indexed.

Was there a breakdown for equitiy vs. bond fund assets? Probably tricky, given the mixed funds, but it could be separated out.

RM
Dollars are hard, but counts are easy, using the check boxes on their "all our funds" age. Counting only "investor shares" and no limit on fund minimums, Vanguard says it has 114 funds total, 65 active. Thus by count, Vanguard actually has 57% active funds, 43% indexed. For stock funds only, meaning those they count as "stock," "international," and "sector'/speciality," and deducting 2 for the international bond funds... I get 54 total, 27 active, or precisely half-and-half.

And they're not tiny funds. Vanguard has quite a lot of substantial funds with billions of dollars in them that are not index funds. PRIMECAP, Wellesley, Wellington, Precious Metals and Mining, and a lot that don't get a lot of mention in this forum like Windsor II, $49 billion in that one. Fifty billion here, 6 billion there, pretty soon you're talking about real money. I don't really know what sort of investors own things like Windsor II and PRIMECAP, but if Vanguard didn't have any of its index funds it would still be a substantial mutual fund company.
Of course this is a very flawed method of measuring whether they have more index or more active. For Index funds, realistically speaking, you only actually need one. Total Stock Market Index Fund. Nothing else is truly necessary. Active funds all have different styles, strategies, techniques, personalities, etc. Each one is different.
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by Aptenodytes »

With the right governance structure, professionally executed, there's no reason Vanguard can't just keep on growing and growing. The ability to compete against them on quality and cost is almost nil. Economies of scale, plus the governance model, give them a huge cost advantage, and in terms of quality the bread-and-butter funds are almost pure commodities. That leaves service, but even there I don't see how a company makes a viable run at competing with Vanguard by bundling better service with worse funds. Places like Betterment are showing how easy it is to offer new services on top of Vanguard funds, and that's what consumers will want.

The business model that Bogle hit on I suspect has a natural equilibrium of one gargantuan firm that grows on the merits, and a bunch of smaller firms that survive on other things that drive consumer choice, such as brand loyalty, inertia, regional chauvinism, etc. That's why the governance question is so important. Governed well, this model can go on forever; governed badly, the potential for abuse by a leviathan becomes more and more of a threat.
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by Levett »

"if Vanguard didn't have any of its index funds it would still be a substantial mutual fund company"

Indeed.

If you add the AUM of just seven Wellington managed funds--Div Growth, Equity Income, GNMA, Healthcare, HY Corporate,
Wellesley, and Wellington--you will see a total quite near $250 billion.

I can't imagine Vanguard wishing to dissociate itself from Wellington Management.

I would also add that Vanguard's Target Date funds have been an absolute boon to indexing. Target Date funds are a very hot item in the 401(K) market. Just an observation.

Lev
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ogd
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by ogd »

LongerPrimer wrote:No wonder why some stocks should be going flat to declining but are slightly increasing. I stay away from the big stocks because of equity mutual funds are forced to buy and hold them because of their parties' capitalizations.
This is not a good rationale. Indexers don't affect the relative prices of the securities they trade; a simple proof is that you'd see periods where the majority of active investor outperform index funds and that's mathematically impossible. Another simple reason is that index funds are responsible for very little trading, just their net inflows as opposed to 100% of their AUM yearly like some active funds. Trading means price-setting. If some large caps look overvalued, it's because some other active investors are even more enthusiastic than indexers.

The valid reason to invest in small is the so called size premium, which may or may not persist, and in fact I'm pessimistic at the current valuation levels for small stocks (have you looked at those??).
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LAlearning
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by LAlearning »

Don't worry, those people will flow out in the next crash leaving us where we started.
I know nothing!
chaz
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by chaz »

House Blend wrote:
spectec wrote:Eschew Stock Pickers
Eschew Obfuscation

Ah, but I repeat myself
Superfluity does not vitiate.
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ruralavalon
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by ruralavalon »

I thought that the WSJ article was great, and tend not to worry about whether success will spoil Vanguard.
Simplegift wrote:
ResearchMed wrote:Any idea what percentage of the total money invested at Vanguard is in "index" vs. "managed" funds?
According to Morningstar, at the end of 2013, about 70% of Vanguard's assets were indexed and about 30% were actively-managed.
Morningstar wrote:The suburban Pennsylvania behemoth now manages $2.3 trillion in long-term funds and ETFs. Of that amount, 71% sits in indexed strategies where large scale helps to spread fixed costs. Vanguard passes these savings on to the fund investor. Still, 29% of assets, or $683 billion, resides in actively managed strategies, quietly placing the group as the third-largest manager of actively managed funds in Morningstar’s universe, behind only Fidelity and Capital Group (American Funds).
Note that Vanguard's actively managed funds still carry very low expense ratios, with no loads or 12b1 fees. (When I bought Vanguard's Intermediate Term Investment Grade, I incorrectly assumed that it was an index fund just because its expense ratio is 0.10%.)

Most Vanguard bond funds are actively managed, I don't know of a dollar breakdown.
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neofight
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by neofight »

Interesting that this report from SigFig shows that younger investors are going for broad index funds more than the older investors are:
http://blog.sigfig.com/stock-market-tre ... ortfolios/

I find this pretty counter-intuitive, I would have guessed that gambling on single-company stocks would be more a young person's game, and the more seasoned investors would have learned that indexing is better in the long run. Apparently the SigFig customer base does not agree with my (now discredited) hypothesis.
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by pingo »

Sheepdog wrote:What concerns me with the Vanguard growth is not the money as much but will Vanguard's customer service (facilities and staff training) grow with it.
I don't know nothin', but I assume there are growing pains. I imagine CS is struggling as we speak.
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by SimpleGift »

For some historical perspective, a chart of Vanguard's market share of total U.S. mutual fund and ETF assets since 1993, relative to its competitors.

So far, Vanguard's cost advantage is just unbeatable. On an asset-weighted basis (according to the article), its average expense ratio is 0.15% — well below the 0.68% asset-weighted expense ratio of the industry overall and lower than that of Fidelity (0.67%), American Funds (0.74%), and iShares (0.33%), its three nearest competitors.

Image
Source: Fidelity Investments
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BackInTheBlack
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by BackInTheBlack »

Interesting. Investors have similarly been throwing money into Blackrock's products for the very same reason. iShares ETF's are very, very popular investment vehicles, and by far the biggest threat to Vanguard's market share going forward. Observing the inexorable move by the investment community into passive investments, I found myself wishing there was some way to own equity in Vanguard (not talking about owning the funds and benefiting from cost-savings as a mutual owner). However, I decided to opt for the next best thing and throw some money into BLK and continue to be very pleased with the progress of the company. Margins are exceptional, capital return policies are very shareholder-friendly, and the company is riding the rising tide of inflows into ETF's, etc. And another important thing to consider when investing in an asset manager is its exposure to the equity market. Fortunately for BLK, it has roughly as much AUM in bonds as it does in equities, so any market downturn will affect its profitability much less than most competitors.

*Edited to add: BLK is the biggest asset manager in the world with AUM of $4.6 trillion.
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Re: Investors Pour Into Vanguard, Eschewing Stock Pickers

Post by rnitz »

toto238 wrote: Bogle could've made billions. Instead he chose to make a difference.
What a great comment. I've often tried to think how grateful I am to Jack, the pains he went through with "Bogle's folly" trying to change an industry. This encapsulates it so well that I'm going to steal it (and sorry for deleting your smiley - it's too deep and serious a comment to make light of.) Thank you toto.
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