Vanguard rules the world of low-cost index investing

The quirky, mission-driven fund company has scooped up about 8.5 times as much investor money in the past three years as all 4,000-plus competitors in the mutual-fund industry combined.

MALVERN, Pa. — The Vanguard trading floor is the epicenter of one of the great financial revolutions of modern times, yet it is a surprisingly relaxed place.

A few men and women gaze at Bloomberg terminals. There is a muted television or two and a view of verdant suburban Philadelphia. No one is barking orders to buy or sell stock. For a $4.2 trillion mutual-fund giant that is still growing rapidly, it occupies a small fraction of the space of a typical Wall Street trading hub.

You can barely hear the quiet hum of money being invested — money in scarcely imaginable quantities, pouring into low-cost index mutual funds and exchange-traded funds (ETFs) that track financial markets.


Founded: in 1975 by John C. Bogle

Ownership: A mutual company owned by its funds, which in turn are owned by their investors

Clients: 20 million

Assets: $4.2 trillion, including $3 trillion invested in passive index-based strategies

Source: NYT, Vanguard Group

In the last three calendar years, investors sank $823 billion into Vanguard funds, the company says. The scale of that inflow becomes clear when it is compared to the rest of the mutual-fund industry — more than 4,000 firms in total. All of them combined took in just a net $97 billion during that period, Morningstar data show. Vanguard, in other words, scooped up about 8.5 times as much money as all of its competitors.

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“Flows of this magnitude into one company are unprecedented,” said Alina Lamy, an expert on fund flows at Morningstar. “Since the crisis, investors have been saying, ‘I may not be able to control the market, but I can control how much I pay in mutual-fund expenses.’ And when they look for quality funds with low fees, the first answer is Vanguard.”

The triumph of index-fund investing means Vanguard’s traders funnel as much as $2 billion a day into stocks like Apple, Microsoft and Amazon, as well as thousands of smaller companies that the firm’s fleet of funds track. That is 20 times the amount that Vanguard was investing on a daily basis in 2009.

It is manageable, in large part, because no stock-picking is involved: The money simply flows into index funds and ETFs, and through February of this year, nine out of every 10 dollars invested in a United States mutual fund or ETF was absorbed by Vanguard.

By any measure, these are staggering figures. Vanguard’s assets under management have skyrocketed to $4.2 trillion from $1 trillion seven years ago, according to the company. About $3 trillion of this is invested in passive index-based strategies, with the rest in funds that rely on an active approach to picking stocks and bonds.

This deluge of cash abandoning higher-price actively…

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