The Vanguard Group

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The Vanguard Group, Inc.
TypePrivately held company[1]
IndustryInvestment management
FoundedMay 1, 1975; 46 years ago (1975-05-01)
FounderJohn C. Bogle
Headquarters,
United States
Key people
Mortimer J. Buckley
(Chairman & CEO)
ProductsMutual funds
Exchange-traded funds
Broker
Asset management
Sub-advisory services
RevenueIncrease $6.936 billion (2020)[2]
AUMIncrease $7.1 trillion (2020)[3]
Number of employees
Increase17,600 (January 31, 2020)[4]
Websitewww.vanguard.com

The Vanguard Group, Inc. is an American registered investment advisor based in Malvern, Pennsylvania with about $7 trillion in global assets under management, as of January 13, 2021.[5] It is the largest provider of mutual funds and the second-largest provider of exchange-traded funds (ETFs) in the world after BlackRock's iShares.[6] In addition to mutual funds and ETFs, Vanguard offers brokerage services, variable and fixed annuities, educational account services, financial planning, asset management, and trust services. Several mutual funds managed by Vanguard are ranked at the top of the list of US mutual funds by assets under management.[7] Along with BlackRock and State Street, Vanguard is considered one of the Big Three index fund managers that dominate corporate America.[8][9]

Founder and former chairman John C. Bogle is credited with the creation of the first index fund available to individual investors and was a proponent and major enabler of low-cost investing by individuals,[10][11] though Rex Sinquefield has also been credited with the first index fund open to the public a few years before Bogle.[12]

Vanguard is owned by the funds managed by the company and is therefore owned by its customers.[13] Vanguard offers two classes of most of its funds: investor shares and admiral shares. Admiral shares have slightly lower expense ratios but require a higher minimum investment, often between $3,000 and $100,000 per fund.[14] Vanguard's corporate headquarters is in Malvern, a suburb of Philadelphia. It has satellite offices in Charlotte, North Carolina, and Scottsdale, Arizona. The company also has offices in Canada, Australia, Asia, and Europe.

History[edit]

Formation[edit]

In 1951, for his undergraduate thesis at Princeton University, John C. Bogle conducted a study in which he found that most mutual funds did not earn more money compared to broad stock market indexes.[15] Even if the stocks in the funds beat the benchmark index, management fees reduced the returns to investors below the returns of the benchmark.[16]

Immediately after graduating from Princeton University in 1951, Bogle was hired by Wellington Management Company.[17] In 1966, he forged a merger with a fund management group based in Boston.[17] He became president in 1967 and CEO in 1970.[17] However, the merger ended badly and Bogle was therefore fired in 1974.[17] Bogle has said about being fired: "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. And if I had not been fired then, there would not have been a Vanguard."[18]

Bogle arranged to start a new fund division at Wellington. He named it Vanguard, after Horatio Nelson's flagship at the Battle of the Nile, HMS Vanguard.[19] Bogle chose this name after a dealer in antique prints left him a book about Great Britain's naval achievements that featured HMS Vanguard. Wellington executives initially resisted the name, but narrowly approved it after Bogle mentioned that Vanguard funds would be listed alphabetically next to Wellington Funds.[10]

Growth of company[edit]

The Wellington executives prohibited the fund from engaging in advisory or fund management services. Bogle saw this as an opportunity to start a passive fund tied to the performance of the S&P 500, which was established in 1957.[10][11] Bogle was also inspired by Paul Samuelson, an economist who later won the Nobel Memorial Prize in Economic Sciences, who wrote in an August 1976 column in Newsweek that retail investors needed an opportunity to invest in stock market indexes such as the S&P 500.[20][21]

In 1976, after getting approval from the board of directors of Wellington, Bogle established the First Index Investment Trust (now called the Vanguard 500 Index Fund).[22] This was one of the earliest passive investing index funds, preceded a few years earlier by a handful of others (e.g., Jeremy Grantham's Batterymarch Financial Management in Boston, and index funds managed by Rex Sinquefield at American National Bank in Chicago, and John "Mac" McCown at Wells Fargo's San Francisco office).[23][12]

Bogle's S&P 500 index raised $11 million in its initial public offering, compared to expectations of raising $150 million.[24] The banks that managed the public offering suggested that Bogle cancel the fund due to the weak reception, but Bogle refused.[10][11] At this time, Vanguard had only three employees: Bogle and two analysts. Asset growth in the first years was slow, partially because 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 in assets, 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.[10][11] This brought assets up to almost $100 million.

Growth in assets accelerated after the beginning of a bull market in 1982, and the indexing model became more popular at other companies. These copy funds were not successful since they typically charged higher fees, which defeated the purpose of index funds. In December 1986, Vanguard launched its second mutual fund, a bond index fund called the Total Bond Fund, which was the first bond index fund ever offered to individual investors.[25] One earlier criticism of the first Index fund was that it was only an index of the S&P 500.[10][11] In December 1987, Vanguard launched its third fund, the Vanguard Extended Market Index Fund, an index fund of the entire stock market, excluding the S&P 500.[26] Over the next five years, other funds were launched, including a small-cap index fund, an international stock index fund, and a total stock market index fund. During the 1990s, more funds were offered, and several Vanguard funds, including the S&P 500 index fund and the total stock market fund, became among the largest funds in the world, and Vanguard became the largest mutual fund company in the world.[27] Noted investor John Neff retired as manager of Vanguard's Windsor Fund in 1995, after a 30-year career in which his fund beat returns of the S&P 500 index by an average of 300 basis points per year.[28]

Recent[edit]

Bogle retired from Vanguard as chairman in 1999 when he reached the company's mandatory retirement age of 70 and he was succeeded by John J. ("Jack") Brennan.[29] In February 2008, F. William McNabb III became President[30] and in August 2008, he became CEO.[31] Both of Bogle's successors expanded Vanguard's offerings beyond the index mutual funds that Bogle preferred, in particular into exchange traded funds (ETFs) and actively managed funds.[32] Some of Vanguard's actively-managed funds predate Bogle's retirement however (their healthcare stock fund began in 1984).[33] Bogle had been skeptical of ETF's as they trade mid-day like single stocks while mutual funds trade on a single price at day's end. He believed buy and hold investors could make good use of ETFs tracking broad indices, but thought ETFs had potentially higher fees due to the bid ask spread, could be too narrowly specialized, and worried anything that could be traded mid-day would be traded mid-day, potentially reducing investor returns.[34]

In May 2017 Vanguard launched a fund platform in the United Kingdom.[35]

In July 2017, it was announced that McNabb would be replaced as chief executive officer by chief investment officer Mortimer J. Buckley, effective January 1, 2018.[36] McNabb remains at the company as chairman.[37]

In 2020, Vanguard rolled out a digital adviser and began building up an investment team in China.[38] In October 2020, Vanguard returned about $21 billion in managed assets to government clients in China due to concerns about legal compliance, staffing and profitability.[39]

See also[edit]

References[edit]

  1. ^ "The Vanguard Group, Inc.: Private Company Information - Bloomberg". www.bloomberg.com. Retrieved December 22, 2019.
  2. ^ "Profile: The Vanguard Group".
  3. ^ "The Financial Times". www.ft.com. January 12, 2021.
  4. ^ "Fast facts about Vanguard". The Vanguard Group, Inc. Retrieved March 5, 2019.
  5. ^ Flood, Chris (January 13, 2021). "Vanguard's assets hit record $7tn". Financial Times. Archived from the original on June 21, 2021. Retrieved June 21, 2021.
  6. ^ "ETF League Tables - ETF.com". Retrieved March 22, 2017.
  7. ^ "Lipper Performance Report" (PDF).
  8. ^ Bebchuk, Lucian; Hirst, Scott (2019). "Index Funds and the Future of Corporate Governance: Theory, Evidence, and Policy". Columbia Law Review. 119 (8): 2029–2146. SSRN 3282794.
  9. ^ McLaughlin, David; Massa, Annie (January 9, 2020). "The Hidden Dangers of the Great Index Fund Takeover". Bloomberg Businessweek. Retrieved June 7, 2021.
  10. ^ a b c d e f "Lightning Strikes: The Creation of Vanguard, the First Index Mutual Fund, and the Revolution It Spawned" (PDF). Bogle Financial Markets Research Center. April 1, 1997.
  11. ^ a b c d e Sommer, Jeff (August 11, 2012). "A Mutual Fund Master, Too Worried to Rest". New York Times. Retrieved February 2, 2015.
  12. ^ a b Riley, Naomi Schaefer (October 26, 2012). "The Weekend Interview with Rex Sinquefield: Meet One of the Super-PAC Men". WSJ. Retrieved December 30, 2015.
  13. ^ DiStefano, Joseph N. "Vanguard SEC filings drop 'at-cost,' 'no profit' claims that were dear to late founder John Bogle". The Philadelphia Inquirer. Retrieved October 4, 2019.
  14. ^ "Admiral Shares help keep your costs under control". Vanguard. April 9, 2020.
  15. ^ Armbruster, Mark (October 14, 2016). "Comparing index mutual funds and active managers" (PDF). Rochester Business Journal.
  16. ^ MacBride, Elizabeth (October 14, 2015). "Jack Bogle: Follow these 4 investing rules—ignore the rest". CNBC.
  17. ^ a b c d Ferri, Rick (February 10, 2014). "What Was John Bogle Thinking?". Forbes Magazine.
  18. ^ Boyle, Matthew (December 17, 2007). "Be prepared for a lot of bumps". Fortune Magazine.
  19. ^ Reklaitis, Victor (December 22, 2014). "5 things you don't know about Vanguard". MarketWatch.
  20. ^ Mihm, Stephen (September 6, 2016). "How Index Funds Prevailed". Bloomberg L.P.
  21. ^ Baldwin, William (January 21, 2015). "Is Vanguard Too Successful?". Forbes Magazine.
  22. ^ Culloton, Dan (August 9, 2011). "A Brief History of Indexing". Morningstar.
  23. ^ Fox, Justin (2011). The myth of the rational market : a history of risk, reward, and delusion on Wall Street (1st ed.). New York: Harper Business. ISBN 978-0-06-059903-4. OCLC 753745023.
  24. ^ Bogle, John; Rafalaf, Andrew (October 1, 2002). "A Wall Street Revolution". Fortune Magazine. CNN.
  25. ^ Bogle, John C. (July 5, 2012). The Clash of the Cultures: Investment vs. Speculation. John Wiley & Sons. ISBN 9781118238219.
  26. ^ "Quick Guide to Vanguard Extended Market Index Investor Fund". Zacks.
  27. ^ Godin, Seth (1997). If You're Clueless about Mutual Funds and Want to Know More. Dearborn Financial Publishing, Inc. p. 98. ISBN 9780793125548.
  28. ^ Loth, Richard. "The Greatest Investors: John Neff". Investopedia.
  29. ^ Costello, Martine (August 12, 1999). "Vanguard's Bogle retires". CNN.
  30. ^ "McNabb To Succeed Brennan at Vanguard". Forbes Magazine. February 22, 2008.
  31. ^ "Executive Moves". Money Management Executive. December 14, 2009.
  32. ^ "Index funds vs. actively managed funds | Vanguard". investor.vanguard.com. Retrieved May 19, 2020.
  33. ^ "Vanguard Mutual Fund Profile | Vanguard". investor.vanguard.com.
  34. ^ Benz, Christine (2010). "Bogle: Buy and Hold, Don't Trade ETFs". Morningstar.com. Retrieved July 9, 2021.
  35. ^ Ricketts, David. "Hargreaves hit as Vanguard goes direct to man on the street". Retrieved October 4, 2019.
  36. ^ Smith, Peter (July 13, 2017). "Tim Buckley to succeed Bill McNabb as Vanguard chief". Financial Times. Retrieved July 14, 2017.
  37. ^ Moyer, Liz (July 13, 2017). "Vanguard, manager of $4.4 trillion and leader in the index fund business, is getting a new CEO". CNBC. Retrieved January 26, 2018.
  38. ^ Wigglesworth, Robin; Henderson, Richard (January 12, 2020). "Vanguard and the US financial system: too big to be healthy?". Financial Times. Retrieved December 21, 2020.
  39. ^ "Vanguard Returns $21 Billion in Assets to China State Funds". Bloomberg. Archived from the original on October 11, 2020. Retrieved October 11, 2020.

External links[edit]