It is Jack Bogle's world. The rest of the asset management business is just living in it.
Fresh off setting a record for most net inflows in a single year, The Vanguard Group Inc., which Mr. Bogle founded in 1975, took in $53.6 billion in the first quarter, a single-quarter record for the firm.
That is also $15 billion more than was taken in by Pacific Investment Management Co. LLC, the second-best-selling mutual fund company in the first quarter, according to Lipper Inc.
Last year, Vanguard pulled in more than $138 billion, topping J.P. Morgan Chase & Co.'s record of $129 billion in net inflows for a single year in 2008.
“There're two things going on,” said Mike Rawson, analyst at Morningstar Inc. in Chicago. “The primary driver has been the shift to low-cost passive investing. Vanguard has some of the lowest options available, so they've benefited from that.”
“They also have a lot of good bonds funds, and investors have been clamoring for bonds,” Mr. Rawson added.
Vanguard has been pounding home the message “low costs lead to better long-term results” for almost 40 years, so it is no surprise to see the firm benefiting from a higher demand for passive investments.
But it isn't the firm's cheerleading that has turned the tide, said Dan Weiner, editor of The Independent Adviser for Vanguard Investors. “Interest in active management is fading because the press is fading on it,” he said.
Can you blame the media when only one in four large-cap equity funds have beaten the Standard & Poor's 500 stock index for the 10-year period ended Dec. 31?
Passive investing and the bond fund bonanza are both largely out of Vanguard's control, Mr. Rawson said.
When it comes to factors that Vanguard does control, however, officials have positioned the firm for the windfall of flows.
“What they can control is their costs and the way they run their business,” Mr. Rawson said.
“It's not a very aggressive sales culture. They've tried to be conservative, and in the long run, that's helped the brand,” Mr. Rawson said.
In the first quarter, more than $33 billion flowed into Vanguard's mutual funds and $19 billion into its exchange-traded funds, according to Morningstar.
Most impressively, Vanguard's ETF flows made up 57% of all such flows in the first quarter, despite the company ranking third by size among providers of ETFs behind BlackRock Inc.'s iShares and State Street Global Advisors.
Vanguard's share of the ETF market has grown to 19%, from 13% three years ago.
“That's a pretty big rise in market share,” Mr. Rawson said.
Vanguard's overall share of the mutual fund and ETF market has grown to 18%, from 15% in 2010, according to Lipper.
"Vanguard maintains blistering pace of asset growth" originally appeared on InvestmentNews' website, a sister publication of Pensions & Investments.
