Economist Burton Malkeil has called the Index Fund "the most important economic innovation created for each investor." And a look at index fund spies Vanguard's performance over the last decade shows that many individual investors agree.
Over the past 12 years, Vanguard has taken more money online than any other fund company, according to data from Morningstar. Just another company, BlackRock
the subsidiary iShares, has appeared on the list of top five mains receivers every year since 2007, and with nearly $ 2 billion in net inflow since that time, Vanguard has attracted more than double the dollar amount iShares has the last 1
Ben Carlson, director of institutional asset management at Ritholtz Wealth Management, labeled Vanguard "Amazon of wealth management", as he learned the extent of Vanguard's leadership over the competition, says in an interview with MarketWatch that the comparison is appropriate, not just because both companies were leading innovators in their respective industries, but because they have used the scale to drive prices lower and build unparalleled brand loyalty.
"Amazon is the first place you go to buy something, whether it's the cheapest or not. And Vanguard is the first place to think when buying for the low cost," he said.
Vanguard, and John Bogle in particular, pioneered so-called passive investment strategies and promoted the first ever fund in 1975, trying to track the performance of benchmarks such as S & P 500
SPX, + 0.15%
instead of actively picking stocks in an effort to surpass an index. Because the fund was not actively managed, Vanguard could offer bedrock money, as compared to other UCITS, which usually use analysts and star pickers to identify investments.
Todd Rosenbluth, senior director of ETF and fund-based research at CFRA, told MarketWatch that the popularity of such index funds has grown steadily since that time, with the trend towards low return indices invested intensively over the past decade.
"Vanguard has been in the sweet spot in two trends that have dominated the wealth management," he said. "We have seen a significant shift towards index investment over the last 10 years, and in the active management world there has been a shift towards low-cost active investment," says Rosenbluth. "Because of its culture of cheap investment and the mutual ownership structure, Vanguard has been able to reap the benefits of those who want low fees, active management as well. "
Vanguard is a client-owned company, where the shareholders own the funds offered by Vanguard, which in turn owns the company itself.
However, these days it is not always a supplement to referring to a company like Amazon of their industry, given the growing concerns in a few quarters over Amazon's dominance in e-commerce. Even Bogle, Vanguard's founder, began to wonder about Vanguard and The index fund revolution has become "too successful at its own discretion."
In an November November editorial in the Wall Street Journal, Bogle pointed out that index funds have grown from holding 4.5% of total US The stock market in 2002 reached 17% in 2018. "If historical trends continue, a handful of giant institutional investors will one day hold voting control of virtually all major US companies," he wrote. "Public policies cannot ignore this growing dominance and assess its impact on financial markets, corporate governance and regulation. These will be major problems in the near future."
Some critics have gone so far as to say that passive investment is damaging capitalism, because passive investors do not engage in the analysis of securities that help them be priced accurately. Rosenbluth says that such fears are overblown because "most trading activity in stocks is that bonds still happen at the active, individual level."
In addition, an February 18 in the New York Times claimed that passive investment funds may be vulnerable to manipulation and conflicts of interest. "Conflicts of interest should concern anyone invested in index funds, which includes many Americans with retirement accounts. Index providers have tremendous power. The decision to include a company in the S. & P. 500, for example, results in a redistribution of billions of dollars by investors average company added S. & P. 500 gains value; once removed, the stock price as index fund sells its holdings, "wrote authors of the article Robert J. Jackson Jr. and Steven Davidoff Solomon.
CFRAs Rosenbluth makes passive funds abundantly transparent and perhaps even more than individual stocks.
For Vanguard's success, the research director says that the growing popularity of the kind of passive investment that the company has pioneered will require leading passive companies to take responsibility for their overall role in corporate governance decisions. "As there is a greater concentration of equity among a few companies," he said, "they need to make sure the shareholders know why they've made the decisions they have."
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