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In Memoriam

Jack Bogle remembered for imprint on investing

Jack Bogle

Less than two months before his death, John C. "Jack" Bogle, known as "the father of indexing," urged the industry to look beyond the success of the low-cost investment vehicle that helped propel Vanguard Group to its current status as the world's second-largest money manager. He challenged his peers to contend with the future of indexing, should its widespread acceptance continue on its current trajectory.

It was the contrarian in Mr. Bogle, who died Jan. 16 at the age of 89 in Bryn Mawr, Pa., that envisioned "The Vanguard Experiment," a deviation from the industry status quo as far as the corporate structure of a typical mutual fund complex. But he earned his reputation as the investor's advocate, after he brought his brand of low-

cost, accessible investing to market in 1976 with the first index mutual fund.

More than four decades later, Mr. Bogle, still the advocate, questioned how the community could counter looming consequences of the massive shift toward indexing, while acknowledging the "enormous value" index funds still provide, he wrote in a November op-ed in The Wall Street Journal.

He warned investors to consider the outcome: "If historical trends continue, a handful of giant institutional investors will one day hold voting control of virtually every large U.S. corporation," Mr. Bogle wrote. "Public policy cannot ignore this growing dominance, and consider its impact on the financial markets, corporate governance and regulation. These will be major issues in the coming era."

This mindset was "a typical John Bogle way of thinking — what are (the) implications of what people are doing?" said John Casey, the now-retired former chairman of Casey Quirk, a New York-based business of Deloitte Consulting LLP, who met Mr. Bogle in the 1970s.

In fact, Mr. Bogle had gone down this path with Mr. Casey when they spoke in September as he was working on the opinion piece.

"He was really concerned about what would be the implications of too many people starting to index. Everybody was looking for lower cost (options), but everybody followed the same strategy," Mr. Casey recalled of their September phone call.

"He's been at the forefront of so many forward-thinking, but also very practical, investment solutions," Mr. Casey said in a phone interview. "John Bogle was a man who, if a door was shut, would find a way to walk through it."

Major institutional player

Vanguard Group Inc., which Mr. Bogle founded in 1974, became a major institutional player in tandem with the birth of the 401(k) plan, which was introduced in 1978.

The Malvern, Pa.-based manager, which had $4.9 trillion in global assets as of Dec. 31, was on track to surpass BlackRock (BLK) Inc. (BLK) as the world's largest money manager by no later than 2022, found a May 2018 Pensions & Investments assessment of the firms' compound annual growth rates. Additionally, according to P&I's historical data, Vanguard's indexed assets under management rose more than eightfold over the 12-year period ended June 30, to $3.86 trillion from $474.5 billion.

"The world was wondering if it was a good idea or not to start a primarily mutual fund company where the main service would be low-cost investment services," Mr. Casey said of the response to Mr. Bogle in the '70s.

Prior to founding Vanguard, Mr. Bogle left Wellington Management Co., where he got his start as a 22-year-old and rose in rank to eventually become president in 1967. He left seven years later, however, during a management dispute as Wellington merged with Boston investment firm Thorndike, Doran, Paine & Lewis, according to a Jan. 16 news release from Vanguard announcing his death.

Stacy Schaus, the former defined contribution practice leader at Pacific Investment Management Co. LLC, who is the founder and CEO of the Schaus Group LLC, a Costa Mesa, Calif.-based independent consulting firm, shared that "Often, people talk about Jack Bogle bringing normal people the opportunity to invest. With defined contribution, you are reaching (those) who are normal people — and often times, people who leave their money for decades without touching it."

"When I think of his work at Vanguard, I think about him bringing the opportunity to invest in the markets, even with a small amount of money," she said in a phone interview.

At the time of Mr. Bogle's launch of Vanguard, many early conversations about indexing seemed to paint the investing approach as "un-American," Ms. Schaus said of the industry's response.

"There was a significant amount of time that went into fundamental equity research as to whether a company should be bought or sold," she explained. "And to go in and blindly buy stocks because they are part of an index — there may have been argument that this was 'un-American' because you have a lot of analysts doing very hard work in evaluating the prices, and an indexer just comes in and buys them."

But the market evolved, as did the perception of indexing, Ms. Schaus noted.

First indexed mutual fund

With Mr. Bogle's introduction of the first indexed mutual fund, he "executed what people had talked about for years, but not done," said Matthew Fink, the former head of the Washington-based Investment Company Institute, who knew Mr. Bogle since 1971.

Mr. Bogle served as chairman of the board of governors of ICI from 1969 to 1970.

"For years, professors, academics and money managers had talked about creating index products. It had started in the pension area (where) there were a few pensions doing it," but Mr. Bogle introduced the first publicly offered index mutual fund, Mr. Fink explained in a phone interview.

Not only did the low-cost option bring investors to the well, so to speak, "it led other institutional managers to use an indexing approach," Mr. Fink said.

Make no mistake, years into index investing's widespread acceptance, Mr. Bogle, who has a stable of followers known as "Bogleheads," was still known to clash with the best and brightest in the industry.

"The blunt-spoken Bogle was no fan of the offshoots," Bruce Jacobs, co-founder, principal and co-chief investment officer of Jacobs Levy Equity Management, Florham Park, N.J., said in an email comment. "Bogle thought exchange-traded funds, which can be traded like stocks throughout the day, encouraged speculation; he believed investors should buy the broad market and hold it forever. Smart beta funds — indexes modified to favor certain stock characteristics — were 'stupid' and not true index funds," he said of Mr. Bogle's hard stance.

Still, over the span of his career, Mr. Bogle "never stopped working on behalf of individual investors," Mr. Jacobs later added.

"He never wavered from his single-minded focus on the mathematics of index funds, which he said could be calculated by a second grader: gross return minus costs equals an investor's return. Anything that increased cost or obscured the simplicity of that formula drew his enmity."

Following Mr. Bogle's death, smart beta pioneer Robert Arnott, who is the founder and chairman of Research Affiliates LLC, Newport Beach, Calif., called the investing legend "one of the greats."

"We had our professional disagreements. He was not a fan of smart beta. He was not a fan of fundamental indexing. But we were good friends. We'd talk about disruptors. He was as disruptive to the investment business as Steve Jobs was to the computer world," Mr. Arnott said in a statement to Bloomberg.

'Democratized investing'

"Jack Bogle democratized investing," P&I's former Editor Michael J. Clowes said. "Through his creation of the first index mutual fund he made it possible for individual investors to gain exposure to the broad stock market, thus acquiring a diversified portfolio at low cost. Though derided as 'Bogle's folly' initially, the index fund has made 401(k) plans suitable as retirement vehicles for millions of workers because of that low cost."

Christopher Battaglia, Pensions & Investments' group publisher also offered that Mr. Bogle "was a tireless advocate for the individual investor and the institutional investor vis-a-vis the defined contribution/401(k) industry."

"There are many investment professionals who have put their own self-interests aside for the betterment of our business, but Jack stood out as a true pioneer. To this day, the culture he established at Vanguard remains unique. P&I will always be grateful for his many contributions to our publication, brand and audience. We are better off as an industry due to his many contributions," Mr. Battaglia said.

Over the course of his career, Mr. Bogle wrote 12 books, among them, his first, published in 1993: "Bogle on Mutual Funds: New Perspectives for the Intelligent Investor."

Time magazine named him one of the world's 100 most powerful and influential people in 2004.