Vanguard Group Inc. has been on a tear.
The Malvern, Pa.-based money manager's worldwide institutional assets under management have surged 151% in five years, to $2.1 trillion as of June 30, according to Pensions & Investments' research.
By comparison, BlackRock Inc. — the world's largest money manager — has seen growth in worldwide institutional AUM of 34% during this same period, to $3.08 trillion.
In addition, Vanguard's total U.S. institutional tax-exempt AUM was nearing $1 trillion ($901.39 billion) as of June 30.
Its next closest competitor is State Street Global Advisors, with $1.9 trillion in worldwide institutional assets under management as of June 30.
Vanguard's institutional business saw the most inflows from defined contribution plans, particularly target-date funds, said Martha King, managing director and head of Vanguard's institutional investor group, in a phone interview.
“We are the largest fund manager of DC assets in the U.S and also the No. 1 firm for target-date fund flows,” Ms. King said.
Vanguard Group, in early 2015, surpassed SSgA as the second-largest exchange-traded fund provider. At year-end 2013, Vanguard surpassed Fidelity as the largest manager of U.S. defined contribution plan assets, a post Fidelity had held since 1998.
Sources believe Vanguard's growth is sustainable.
Daniel P. Wiener, editor of the Potomac, Md.-based newsletter Independent Adviser for Vanguard Investors, which has no affiliation with the company, said a lot of Vanguard's overall AUM growth is connected to a growing economy.
“A lot of money is 401(k) money. So, if the economy stays strong and folks continue to recognize it pays to get money into the market sooner rather than later, then yes, it's sustainable,” said Mr. Wiener. “They've created a money-printing machine there with their index funds.”
Michael A. Rosen, a principal and chief investment officer at investment consultant Angeles Investment Advisors LLC, Santa Monica, Calif., attributed Vanguard's continued rapid growth to being both a primary beneficiary of a move toward more passive exposure and being prepared for that move.
“They've done a great job,” said Mr. Rosen. “They've built a better mousetrap that's attracting a lot of mice.”
Mr. Rosen also noted Vanguard has been very competitive on strategies, kept costs low and has been offering reasonable fees.
Data from Morningstar Inc. show the average expense ratio for Vanguard funds is 12 basis points, compared to the average expense ratio for all U.S. open-end mutual funds, which is 91. On a weighted average basis, it is eight basis points, vs. the industry average, which is 12 basis points.
“There's no reason to think their success won't continue,” Mr. Rosen added.
Vanguard could be vulnerable in “markets where being in the largest cap stock isn't a good thing,” and markets where “active managers tend to perform better,” said Tim Barron, chief investment officer at consultant Segal Rogerscasey in Darien, Conn.
Mr. Wiener said that at one point he “would have said Vanguard is vulnerable to strong active management performance,” but he noted that “when you look at averages, the average active manager looks terrible. So no, I think they are riding a wave that's very hard to stop.”
As it stands now, he said he believes that “Vanguard's biggest vulnerability is Vanguard.”