The Vanguard Group

The Vanguard Group, Inc.
Privately held company[1]
Industry Investment management
Founded May 1, 1975 (1975-05-01)
Founder John C. Bogle
Headquarters Malvern, Pennsylvania, United States
Key people
 F. William McNabb III
(Chairman)
Tim Buckley
(CEO)
Products Mutual funds
Exchange-traded funds
Brokerage
Asset management
Sub-advisory services[2]
AUM Increase $5.1 trillion (January 31, 2018)[3]
Number of employees
 16,600 (2018)[3]
Website www.vanguard.com

The Vanguard Group is an American registered investment advisor based in Malvern, Pennsylvania with over $5.1 trillion in assets under management.[3] 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.[4] 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.

Founder and former chairman John C. Bogle is credited with the creation of the first index fund available to individual investors and has been a proponent of and a major enabler of low-cost investing by individuals.[5][6] Vanguard is structured as a mutual company; it is owned by funds managed by the company, and is therefore owned by its customers.[7][8] 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.[9]

History

Formation

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 any more money than if they invested in broad stock market indexes.[10] Even if the stocks in the funds beat the benchmark index, management fees reduced the returns to investors below the returns of the benchmark.[11]

Immediately after graduating from Princeton University in 1951, Bogle was hired by Wellington Management Company.[12] In 1966, he forged a merger with a fund management group based in Boston.[12] He became President in 1967 and CEO in 1970.[12] However, the merger ended badly and Bogle was therefore fired in 1974.[12] 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."[13]

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.[14] 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.[5]

Growth of company

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.[5][6] 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.[15][16] Competitors, which marketed high-fee funds claiming to beat the market, resisted Vanguard's low cost index approach. Some competitors labeled it Bogle's folly, and some claimed it was un-American to simply try to match the performance of the stock market, rather than to try to beat it.[17][18]

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).[19] It raised $11 million in its initial public offering, compared to expectations of raising $150 million.[20] The banks that managed the public offering suggested that Bogle cancel the fund due to the weak reception but Bogle refused.[5][6] 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.[5][6] This brought assets up to almost $100 million.

Growth in assets accelerated after the beginning of the bull market in 1982, and other mutual fund companies began to copy the indexing model. These copy funds were not successful since they typically charged high 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.[21] One earlier criticism of the First Index fund was that it was only an index of the S&P 500.[5][6] 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.[22] 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.[23] 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.[24]

Recent

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.[25] In February 2008, F. William McNabb III became President[26] and in August 2008, he became CEO.[27] Both of Bogle's successors expanded Vanguard's offerings beyond the index mutual funds that Bogle preferred, in particular into ETFs and actively-managed funds.

On May 16, 2017, it was reported that Vanguard had launched a brokerage account in the United Kingdom (they were already selling funds and ETF's since 2010 in the UK through Vanguard Asset Management Ltd), and would begin "marketing its low-cost funds directly to retail clients." The press reported that UK rivals experienced drops in share value as a result, with an analyst quoted saying "Vanguard’s plan to shake up the UK investment market with online low-cost direct access to its funds could spark a game-changing price war that stings brokers and fund managers alike." At the time, Vanguard had $4.3 trillion of assets under management, and was the world’s second-largest fund company.[28]

In July 2017, Financial Times reported McNabb would be replaced as chief executive officer by chief investment officer Tim Buckley, effective January 1, 2018.[29] The Wall Street Journal reported upon his becoming CEO that his challenge will be growing the second largest investment firm in the world.[30] McNabb will continue to remain at the company as chairman.[31]

Services

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.[32] 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, between $10,000 and $100,000 per fund.[9]

Offices

Vanguard's corporate headquarters is in 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.

See also

References

  1. ↑ "The Vanguard Group, Inc.: Private Company Information - Bloomberg". www.bloomberg.com. Retrieved January 6, 2018.
  2. ↑ "Vanguard Group Inc". BrightScope.com. Retrieved September 30, 2017.
  3. 1 2 3 "Fast facts about Vanguard". The Vanguard Group, Inc. Retrieved April 7, 2018.
  4. ↑ "ETF League Tables - ETF.com". Retrieved 22 March 2017.
  5. 1 2 3 4 5 6 "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.
  6. 1 2 3 4 5 Sommer, Jeff (August 11, 2012). "A Mutual Fund Master, Too Worried to Rest". New York Times. Retrieved February 2, 2015.
  7. ↑ "Doing well by doing good - TCI Foundation". Retrieved 22 March 2017.
  8. ↑ The Street, August 6, 2012. "Invest For The Future Without Wall Street". Accessed August 22, 20 12.
  9. 1 2 Blokhin, Andriy (October 27, 2015). "What are Vanguard's Admiral Shares?". Investopedia.
  10. ↑ Armbruster, Mark (October 14, 2016). "Comparing index mutual funds and active managers" (PDF). Rochester Business Journal.
  11. ↑ MacBride, Elizabeth (October 14, 2015). "Jack Bogle: Follow these 4 investing rules—ignore the rest". CNBC.
  12. 1 2 3 4 Ferri, Rick (February 10, 2014). "What Was John Bogle Thinking?". Forbes Magazine.
  13. ↑ Boyle, Matthew (December 17, 2007). "Be prepared for a lot of bumps". Fortune Magazine.
  14. ↑ Reklaitis, Victor (December 22, 2014). "5 things you don't know about Vanguard". MarketWatch.
  15. ↑ Mihm, Stephen (September 6, 2016). "How Index Funds Prevailed". Bloomberg L.P.
  16. ↑ Baldwin, William (January 21, 2015). "Is Vanguard Too Successful?". Forbes Magazine.
  17. ↑ Roth, Allan (August 23, 2016). "Index Mutual Funds Turn 40". AARP.
  18. ↑ Fry, Erika (December 8, 2016). "Mutual Fund Giant Vanguard Flexes Its Muscles". Fortune Magazine.
  19. ↑ Culloton, Dan (August 9, 2011). "A Brief History of Indexing". Morningstar.
  20. ↑ Bogle, John; Rafalaf, Andrew (October 1, 2002). "A Wall Street Revolution". Fortune Magazine. CNN.
  21. ↑ Bogle, John C. (July 5, 2012). The Clash of the Cultures: Investment vs. Speculation. John Wiley & Sons.
  22. ↑ "Quick Guide to Vanguard Extended Market Index Investor Fund". Zacks.
  23. ↑ Godin, Seth (1997). If You're Clueless about Mutual Funds and Want to Know More. Dearborn Financial Publishing, Inc. p. 98.
  24. ↑ Loth, Richard. "The Greatest Investors: John Neff". Investopedia.
  25. ↑ Costello, Martine (August 12, 1999). "Vanguard's Bogle retires". CNN.
  26. ↑ "McNabb To Succeed Brennan At Vanguard". Forbes Magazine. February 22, 2008.
  27. ↑ "Executive Moves". Money Management Executive. December 14, 2009.
  28. ↑ Williams, Aime; Marriage, Madison (May 16, 2017). "Vanguard's UK launch sends tremors across investment industry". Financial Times. United Kingdom. Retrieved May 18, 2017.
  29. ↑ Smith, Peter (July 13, 2017). "Tim Buckley to succeed Bill McNabb as Vanguard chief". Financial Times. Retrieved July 14, 2017.
  30. ↑ Krouse, Sarah (January 4, 2018). "The Challenge for Vanguard's New CEO: Keep a Behemoth Growing". Wall Street Journal. ISSN 0099-9660. Retrieved January 6, 2018.
  31. ↑ Moyer, Liz (2017-07-13). "Vanguard, manager of $4.4 trillion and leader in the index fund business, is getting a new CEO". CNBC. Retrieved 2018-01-26.
  32. ↑ "Lipper Performance Report" (PDF).
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