Morningstar--No Signs of Complacency at Vanguard Nor has it sold its soul to reach the top.

[MFInvestor]

Morningstar Article

http://news.morningstar.com/articlenet/ ... ?id=768030

"Even as it has grown into a $3.5 trillion behemoth in 41 years, Vanguard's core values and mission remain intact. Vanguard continues to focus on helping individual investors succeed, although what form this takes continues to expand and evolve. At the center is its unique structure: Vanguard remains the only firm owned by its fundholders, freeing it from the conflicts of interest inherent in other ownership structures. For Vanguard, that has manifested in a sensible lineup of typically core-oriented strategies and a history of sharing economies of scale with clients in a much more meaningful way than many of its competitors."

[LadyGeek]

This thread is now in the Investing - Theory, News & General forum (news).

[Taylor Larimore]

Bogleheads:

Kevin McDevitt, CFA, a senior analyst at Morningstar, has done an excellent job analyzing the Vanguard company today and its opportunities and challenges ahead.

These are excerpts:

Even as it has grown into a $3.5 trillion behemoth in 41 years, Vanguard's core values and mission remain intact.

Vanguard remains the only firm owned by its fundholders, freeing it from the conflicts of interest inherent in other ownership structures

The "Vanguard effect" is leading to fee compression across the industry.

After growing steadily for years, Vanguard's popularity has exploded more recently. With nearly 22% of the combined open-end mutual fund and exchange-traded fund asset base, the firm is more than twice the size of its next-largest U.S. rival.

One executive said to us, "Simplicity has won, and it has won big."

Vanguard has stayed true to its principles even as it has evolved well beyond Bogle's blueprint.

Vanguard pushes U.S.-based investors, which are 90% or so of its client base by assets, to avoid home-country bias and give equal attention to foreign markets.

With trading desks in Asia and Europe, Vanguard also has a 24-hour trading operation, leading to better execution and lower costs for all of its portfolios.

Rivals such as BlackRock, Schwab, and Fidelity are competing with Vanguard on cost in a way that wasn't the case five years ago.

By SEC exemptive order, Vanguard's funds are offered at cost. But its for-profit rivals can theoretically price individual products below cost, making up the lost revenue in other parts of their businesses.

PAS (Personal Advisor Services) offers a hybrid model more personalized than what robo-advisors (which provide low-cost, technology-driven, automated guidance) offer, but at much lower cost than most traditional advisors.

There is a balance between focusing efforts on further cost cuts or reinvesting in the firm's infrastructure and service offerings.

The biggest threat to Vanguard's success may be its size. Vanguard talks about the advantages of scale, which are certainly real, but there are drawbacks, too. For instance, size can make it more difficult to deliver a high level of customer service. And with size comes greater visibility and scrutiny.

Vanguard takes its corporate governance role very seriously and has a team of 12 researching corporate proxies.

Overall, though, Vanguard continues to be a model of fiduciary prudence. It has earned the trust of millions of investors through its low fees and reputation for acting on their behalf. The only way it could squander that trust would be to violate the principles it has followed for four decades.

No Signs of Complacency at Vanguard

Thank you Mr. McDevitt and Morningstar!

Best wishes.
Taylor

[pbearn]

I think there's some complacency in their IT group but I'm mostly willing to overlook that.

[arcticpineapplecorp.]

Thanks Taylor...the moderator might want to merge this thread with the other below:
viewtopic.php?f=10&t=198708&newpost=3038325

I thought this was a well done article in that it was fair and balanced. The author not only praised Vanguard but showed how size is a strength for Vanguard but can also present some problems:

"For instance, size can make it more difficult to deliver a high level of customer service."

And that other companies can offer index funds below cost, while Vanguard has to offer them "at cost" so competitors can (and are) offering some index funds cheaper than Vanguards, but they'll have to make up these loss leaders with other more expensive funds or other services (advisory, etc.).

I liked the following:

it's getting more difficult to move the needle on expenses. While Vanguard continues to periodically cut the expense ratios of individual funds, as of April 2016, it would take more than $500 billion in additional assets to cut the firm's asset-weighted expense ratio by 1 basis point (or 0.01%)."

In http://www.bloomberg.com/news/articles/ ... ts-revenge it said Vanguard could be worth 7 trillion in just 5 years at the rate it's growing. So by that measure Vanguard's fees can and should keep dropping, right?

I also hadn't heard that Vanguard might launch Active ETFs in the U.S. (and I didn't know they were already in Europe and elsewhere). I'm not sure how I feel about that.

Finally, it was interesting to see that they praised ETFs by Vanguard as they're mostly offered in many robo advisory services. So while Jack Bogle might have hated the idea of ETFs because of fear of increased trading/speculation, Vanguard has actually been quite a beneficiary of ETFs not only through Vanguard's customers, but of customers of competitors who use Vanguard's low cost ETFS!

[JoinToday]

When I used to design & build things, I always got a big sense of satisfaction looking at the finished product (when the results were good).

I hope John Bogle gets that same sense of satisfaction.

[bondsr4me]

I think there's some complacency in their IT group but I'm mostly willing to overlook that.

+1....I feel the same way. I think VG is a victim of its own success. I do think that eventually VG will be be able to dig out from the tons of paperwork and new business....just a matter of time until they have people trained to competently take care of their clients. I, for one, am willing to give them the benefit of time. I do have accounts at Fidelity, Schwab, and TDAmeritrade too, but I do intend on consolidating....I am hoping with VG.

Have a great Labor Day weekend BH's.

Don

[student5]

An informative description about Vanguard and its system processes by the Morningstar folks for your information.

http://news.morningstar.com/articlenet/ ... ?id=768030

[Ma15]

I think article could be interpreted very differently for investors outside the US.

Non-US Vanguard isn't mutually owned by the shareholders but wholly owned by Vanguard US who charge something like 7.5% on its international operations. Why should non-US clients invest with Vanguard so that the US investors get to receive the full benefit of lower costs,

In Australia Vanguard on average has higher costs compared to offerings from competitors such as BlackRock and State Street while having significantly higher AUM. Economies of scale is something they tout a lot but definitely isn't something investors see as the end results through reduction in costs.

For example, Vanguard Australian Shares Index Fund (requiring $500,000 minimum) has $AU 9.4 billion AUM and charges 0.18%. The State Street Australian Equities Index Trust has $AU 1 billion AUM and charges 0.16% (requiring $25,000 minimum). So holding 9.4x the assets means charging 12.5% more to investors.

Vanguard Australia even buys VWO (0.15%) on the NYSE and lists it on the ASX as an ETF and charge 0.48%. That's a 320% increase.

They're also heavily push cross-listed ETF's onto their retail clients exposing them of potential estate tax issues as a NRA.

[prudent]

Merged Taylor's and student5's post and their replies into this existing thread.

[SeeMoe]

10 years ago I toured Australia and New (North)Zealand by POV and was pleasantly surprised to learn how many of the locals have heard of
the Vanguard Group! Many of them were investors too. If not for my Vanguard investments I could not have afforded to take the trip, let alone fly business class. I went from a zero to a hero thanks to Vanguard, meeting interesting people and pretty girls along the way as this investor slowly became " The Richest Man in Babylon." (By G.S. Clason, Amazon.)

SeeMoe..

[nedsaid]

I do not have a Vanguard account but I do invest in their index funds and ETFs based on indexes. I have admired them for years though they need to keep their IT updated and need to keep an eye on customer service.

[abuss368]

Bogleheads:

Kevin McDevitt, CFA, a senior analyst at Morningstar, has done an excellent job analyzing the Vanguard company today and its opportunities and challenges ahead.

These are excerpts:

Even as it has grown into a $3.5 trillion behemoth in 41 years, Vanguard's core values and mission remain intact.

Vanguard remains the only firm owned by its fundholders, freeing it from the conflicts of interest inherent in other ownership structures

The "Vanguard effect" is leading to fee compression across the industry.

After growing steadily for years, Vanguard's popularity has exploded more recently. With nearly 22% of the combined open-end mutual fund and exchange-traded fund asset base, the firm is more than twice the size of its next-largest U.S. rival.

One executive said to us, "Simplicity has won, and it has won big."

Vanguard has stayed true to its principles even as it has evolved well beyond Bogle's blueprint.

Vanguard pushes U.S.-based investors, which are 90% or so of its client base by assets, to avoid home-country bias and give equal attention to foreign markets.

With trading desks in Asia and Europe, Vanguard also has a 24-hour trading operation, leading to better execution and lower costs for all of its portfolios.

Rivals such as BlackRock, Schwab, and Fidelity are competing with Vanguard on cost in a way that wasn't the case five years ago.

By SEC exemptive order, Vanguard's funds are offered at cost. But its for-profit rivals can theoretically price individual products below cost, making up the lost revenue in other parts of their businesses.

PAS (Personal Advisor Services) offers a hybrid model more personalized than what robo-advisors (which provide low-cost, technology-driven, automated guidance) offer, but at much lower cost than most traditional advisors.

There is a balance between focusing efforts on further cost cuts or reinvesting in the firm's infrastructure and service offerings.

The biggest threat to Vanguard's success may be its size. Vanguard talks about the advantages of scale, which are certainly real, but there are drawbacks, too. For instance, size can make it more difficult to deliver a high level of customer service. And with size comes greater visibility and scrutiny.

Vanguard takes its corporate governance role very seriously and has a team of 12 researching corporate proxies.

Overall, though, Vanguard continues to be a model of fiduciary prudence. It has earned the trust of millions of investors through its low fees and reputation for acting on their behalf. The only way it could squander that trust would be to violate the principles it has followed for four decades.

No Signs of Complacency at Vanguard

Thank you Mr. McDevitt and Morningstar!

Best wishes.
Taylor

Great summary Taylor. I am glad out investment portfolio and future are in the house that Jack built!

Thank you Mr. Bogle for helping the little guy earn their fair share.

[Dandy]

Vanguard pushes U.S.-based investors, which are 90% or so of its client base by assets, to avoid home-country bias and give equal attention to foreign markets.

Agreed that there is often a home country bias - for almost all investors be they US or foreign citizens. People are more familiar with their home country warts and all then they are for lands they have probably never visited, with different cultures, laws, etc.

BUT, currently, and for quite awhile, the US has been a place that deserved special investment consideration vs most, if not all, other countries. When there is uncertainty in the world, where does money flow to? US Treasuries. That is non US citizens voting with their assets - that is quite an endorsement. They would feel safer putting their money in a country that is about half of the world's economy, has had a stable democracy, pretty much self sufficient, a track record of innovation and adaption to change, with peaceful neighbors, a large ocean separating them from historic issues that exist in Asia, Europe and the Middle East, etc.

There is no guarantee that the US advantage will last but let's not chalk up those who focus more on US vs international as being consumed by home country bias. There are some pretty solid reasons to overweight US assets especially for conservative US investors/retirees. Vanguard thinks it is doing its investors a good thing by "pushing" investors to up their international allocations -- maybe it will be good but it isn't a sure thing. I favor some international investing just not anything approaching global weighting.