The Vanguard Group
|Founded||May 1, 1975|
|Founder||John C. Bogle|
|F. William McNabb III,
chairman & CEO
|Products||Mutual funds; exchange-traded funds; brokerage; asset management|
|AUM||US$3 trillion (September 2014)|
Number of employees
|More than 14,000 in the United States and abroad as of September 30, 2013|
The Vanguard Group is an American investment management company based in Malvern, Pennsylvania, that manages approximately $3.0 trillion in assets. It is the largest provider of mutual funds and the third-largest provider of exchange-traded funds (ETFs) in the world, with approximately $337.2 billion in ETF assets under management, as of January 21, 2014. It offers mutual funds and other financial products and services to retail and institutional investors in the United States and abroad. Founder and former chairman John C. Bogle is credited with the creation of the first index fund available to individual investors, the popularization of index funds generally, and driving costs down across the mutual fund industry.
Vanguard is owned by the funds themselves and, as a result, is owned by the investors in the funds.
The index fund philosophy
For his undergraduate thesis at Princeton, John C. Bogle conducted a study in which he found that around three-quarters of mutual funds did not earn any more money than if they invested in the largest 500 companies simultaneously, using the S&P 500 stock market index as a benchmark. In other words, three out of four of the managers could not pick better specific "winners" than someone passively holding a basket of the 500 largest public U.S companies. The managers could pick specific stocks which would do as well as picking the 500 largest stocks (essentially doing as well as random chance would dictate), but the cost to pay their expenses, as well as the high taxes incurred through active trading, resulted in underperforming the index.
John Bogle, the chairman of Wellington Management Company, was fired for an "extremely unwise" merger that he approved, a poor decision that he considers his biggest mistake, stating, "The great thing about that mistake, which was shameful and inexcusable and a reflection of immaturity and confidence beyond what the facts justified, was that I learned a lot." Though no longer the chairman, he remained with the company, and arranged to start a new fund division at Wellington. He decided to call it Vanguard, named after Horatio Nelson's flagship at the Battle of the Nile, the HMS Vanguard. Bogle choose this name after a dealer in antique prints left him a book about Great Britain’s naval achievements. The book mentioned Nelson’s flagship, leading Bogle to think, with regard to Vanguard, “What a great name.” Bogle also recounts that Wellington executives resisted the name, but narrowly approved it after Bogle mentioned that Vanguard funds would be listed in the alphabetical listings in the Wall Street Journal next to Wellington funds.
The Wellington executives, still smarting over the bad merger, required that the fund not be allowed to engage in advisory or fund management services. Given that this effectively disallowed it to start a new actively managed fund, Bogle saw it as an opportunity to start a passive fund, tied to the S&P 500. Bogle has since said that he was inspired by, not just the academic research showing the potential for a passively managed index fund to outperform an actively managed fund, but also by Paul Samuelson, an economist who later won the Nobel Prize for Economics. In a Newsweek column, Samuelson had cited this academic researching in imploring that someone start a passive index fund tied to the S&P 500. The mutual fund industry, having grown used to high-fee funds marketed as being able to beat the market, resisted Vanguard's low cost index approach. Some labeled it Bogle's folly, and some claimed it was un-American to simply try to be the market, rather than to try to beat it.
After the Wellington board had (reluctantly) agreed to accept Bogle's offer to start the first index fund offered to the general public, Bogle established the fund. Initially called the First Index Trust in 1976 (later changed to Vanguard 500 Index Fund), it raised $11 million in its initial public offering. The banks that managed the public offering had been hoping to raise $150 million, and after the disappointing results, suggested that Bogle cancel the fund. Bogle refused, relishing in the fact that he had just established the world's first index mutual fund. Vanguard at this time constituted of three employees: Bogle and two analysts. Growth in the first years was slow, a situation not helped by the fact that the fund did not pay commissions to brokers who sold it (which was unusual at the time). Within a year the fund had only grown to $17 million, but one of the Wellington Funds that Vanguard was administering had to be merged in with another fund, and Bogle convinced Wellington to merge it in with the Index fund. This brought it up to almost $100 million.
Growth in the fund accelerated after the beginning of the bull market in 1982, and other mutual fund companies began to copy the indexing model. These early attempts were not successful since they typically charged high fees, which defeated the purpose of low cost indexing. In 1986, Vanguard began its second mutual fund, a bond index fund. This was the first bond index fund ever offered to individual investors. One earlier criticism of the First Index fund was that it was only an index of the S&P 500. In 1987, Vanguard considered starting a new fund, this one modeled on the entire stock market. Deciding this was not feasible, later that year Vanguard began its third fund, an "extended market fund" (an index fund of the entire stock market, minus the S&P 500). Over the next five years, other funds were begun, including a small cap index fund, an international stock index fund, and a total stock market index fund. As the 1990s stock market boom got underway, more funds were offered, and several (including the SP 500 index fund and the total stock market fund) became among the largest funds in the world, and Vanguard the largest mutual fund company in the world.
Vanguard's success caused other mutual fund companies, which had resisted Vanguard's low cost indexing model, to begin making a serious effort to offer their own low-cost index funds. Bogle retired from Vanguard as chairman in 1999 and was succeeded by John J. ("Jack") Brennan. On August 31, 2008, F. William McNabb III succeeded Brennan as Vanguard's CEO, having served as the organization's president since March of that year. Both successors expanded Vanguard's offerings beyond the index mutual funds that Bogle preferred, in particular into ETFs (where Vanguard is currently the third largest provider despite its late start) and actively managed funds. Vanguard also provides brokerage services, variable and fixed annuities, educational account services, financial planning, asset management, and trust services. In recent years, more than 100% of the cash flow into mutual funds has gone into index funds (mainly to Vanguard), and currently 25% of all mutual fund assets are in index funds. The trend towards index funds, growing since Vanguard's initial index offering, has subsequently accelerated since the 2009 market crash. Currently, the two largest mutual funds in the world (the Total Stock Market Fund and the 500 Index Fund) are Vanguard's, while several others (such as the Total Bond Market Fund and Total International Market Fund) are among the ten largest.
Vanguard contracts the management of its actively managed funds to various investment firms and sets a portion of the management expenses paid by shareholders based on the fund's performance. Wellington Management Company manages two of Vanguard's biggest funds, the Wellington Fund and Wellesley Income Fund. The Wellington Fund is one of Vanguard's oldest funds, formed on July 1, 1929. Legendary value investor John Neff managed the Windsor Fund from 1964 to 1995, which returned 13.7% annually versus 10.6% for the S&P 500. Vanguard's corporate headquarters are located at Malvern, Pennsylvania, a suburb of Philadelphia. It has satellite offices in Charlotte, North Carolina and Scottsdale, Arizona. The company also has offices in Australia, Asia, and Europe.
- Vanguard Total Stock Market ETF (NYSE Arca: VTI)
- Vanguard FTSE Emerging Markets ETF (NYSE Arca: VWO)
- Vanguard High Dividend Yield ETF (NYSE Arca: VYM)
- Vanguard Total Bond Market ETF (NYSE Arca: BND)
- Vanguard REIT ETF (NYSE Arca: VNQ)
- Vanguard Mid-Cap ETF (NYSE Arca: VO)
- Vanguard Dividend Appreciation ETF (NYSE Arca: VIG)
- Vanguard Total International Stock ETF (NASDAQ: VXUS)
- Vanguard Information Technology ETF (NYSE Arca: VGT)
- Vanguard FTSE All-World ex-US ETF (NYSE Arca: VEU)
- Vanguard Health Care ETF (NYSE Arca: VHT)
- Vanguard Materials ETF (NYSE Arca: VAW)
- Vanguard MSCI EAFE ETF (NYSE Arca: VEA)
- Vanguard Energy ETF (NYSE Arca: VDE)
- Vanguard Growth ETF (NYSE Arca: VUG)
- Vanguard Total World Stock Idx Fd (ETF) (NYSE Arca: VT)
- Vanguard Small-Cap Value ETF (NYSE Arca: VBR)
- Vanguard Extended Market ETF (NYSE Arca: VXF)
- Vanguard Short-Term Bond ETF (NYSE Arca: BSV)
- Vanguard FTSE Europe ETF (NYSE Arca: VGK)
- Vanguard Large-Cap ETF (NYSE Arca: VV)
- Vanguard Utilities ETF (NYSE Arca: VPU)
- Vanguard FTSE All Wd Ex US Small Cap ETF (NYSE Arca: VSS)
- Vanguard Short Term Corporate Bond ETF (NASDAQ: VCSH)
- Vanguard Long-Term Bond ETF (NYSE Arca: BLV)
- Vanguard Financials ETF (NYSE Arca: VFH)
- Vanguard Extended Duration ETF (NYSE Arca: EDV)
- Vanguard Small-Cap Growth ETF (NYSE Arca: VBK)
- Vanguard Value ETF (NYSE Arca: VTV)
- Vanguard Intermediate Tm Cpte Bd ETF (NASDAQ: VCIT)
- Vanguard Consumer Staples ETF (NYSE Arca: VDC)
- Vanguard Intermediate-Term Bond ETF (NYSE Arca: BIV)
- Vanguard MSCI Pacific ETF (NYSE Arca: VPL)
- Vanguard Long Term Corporate Bond ETF (NASDAQ: VCLT)
- Vanguard Mid-Cap Growth ETF (NYSE Arca: VOT)
- Vanguard Sht Term Govt Bond ETF (NASDAQ: VGSH)
- Vanguard Telecommunication Services ETF (NYSE Arca: VOX)
- Vanguard Mega Cap 300 Growth Index ETF (NYSE Arca: MGK)
- Vanguard Industrials ETF (NYSE Arca: VIS)
- Vanguard Consumer Discretionary ETF (NYSE Arca: VCR)
- "Vanguard Reaches $3 Trillion In Assets, Matching Entire Hedge-Fund Industry". WSJ.com. Retrieved September 18, 2014.
- "ETF League Table As Of Jan. 21, 2014". IndexUniverse.
- "The First Index Mutual Fund: A History of Vanguard Index Trust and the Vanguard Index Strategy". Bogle Financial Markets Research Center. October 2014.
- Sommer, Jeff (August 11, 2012). "A Mutual Fund Master, Too Worried to Rest". New York Times. Retrieved February 2, 2015.
- The Street, August 6, 2012. "Invest For The Future Without Wall Street". Accessed August 22, 2012.
- "Standard & Poor's". Standardandpoors.com. Retrieved October 21, 2013.
- "The Vanguard Group, Inc.: Private Company Information - Businessweek". Investing.businessweek.com. Retrieved October 21, 2013.
- Slater, Robert. John Bogle and the Vanguard experiment : One Man's Quest to Transform the Mutual Fund Industry. Chicago: Irwin Professional Pub., 1997. (ISBN 0786305592)
- Boyle, Matthew (December 17, 2007). "Fortune Magazine interview". CNN. Retrieved 2007-12-17.
- "Is Vanguard Too Successful?". Forbes.
- Godin, Seth. "If You're Clueless about Mutual Funds and Want to Know More". Dearborn Financial Publishing, Inc. p. 98. Retrieved March 22, 2014.
- John Neff on Investing
- Total Stock ETFs: A One-Stop Investment for Portfolio Diversification | ETF Trends
- The Battle For ETF Supremacy: Vanguard Ready To Take On BlackRock Seeking Alpha
- "Vanguard Poised to Become 2nd Biggest ETF Issuer". Yahoo Finance.