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ETFs

A personal look at Bogle’s impact on the ETF world

Indexing pioneer Jack Bogle

Dear Jack,

You've been called "the conscience of index investing," "a giant of a man" and even "the most influential man in the stock market," incredible plaudits for someone who never considered himself an investor yet was a booming and outspoken advocate for investors around the globe.

Some call you St. Jack, but I think savior is more appropriate. Your vision for The Vanguard Group, an asset manager mutually owned by its funds, and simple, low-cost indexed and active mutual funds literally saved investors billions in fees, at Vanguard and beyond.

No doubt readers have seen the stories about your life's work, challenges and successes in the weeks since your passing. Personally, I'd like to say thank you. Thank you for inspiring me and countless others — writers, investors, asset managers, financial advisers and even regulators — who stare down financial products with a critical eye.

It's been 20 years since I first met you. I was just a senior in college and the stage manager at Princeton University's Richardson Auditorium. On a Saturday morning in February, you delivered the Woodrow Wilson Award Lecture to an adoring crowd in orange and black.

"It is my prayer that my mission — my crusade, if that is not too lofty a characterization of the course of my career — will help an industry rethink its values, and accordingly be of greater services to growing millions of American investors," you said then.

"Jack received many awards and accolades over his career, but that one was right at the top of the list," your colleague Michael Nolan at the Bogle Financial Markets Research Center told me of your pride in receiving Princeton's highest undergraduate alumni honor.

Several years later, when I was in business school, I was thrilled that you took the time to visit my investment management class as we dug into the inner workings of Vanguard. "Jack spread the word of Vanguard's low-cost philosophy with missionary zeal," said Mr. Nolan.

"You get what you don't pay for" is my favorite saying of yours. And, whether you like it or not, you are the guiding light for many of those who work in and around exchange-traded funds. It's ironic. Your disinterest and, indeed, disdain for the products were on display from the beginning. The story has been recounted several times: You rejected the proposal for Vanguard to sponsor the first U.S. ETF. Still, when State Street Global Advisors launched the SPDR S&P 500 ETF in 1993, it was priced to compete with the Vanguard 500 index fund.

Even though you had retired from the company in 1999, Vanguard's entry into the ETF market in 2001 was designed with you in mind. "What the (heck) are you doing?" you yelled from the second floor of the Vanguard galley to Gus Sauter, then-head of equities and later chief investment officer at the $5.3 trillion asset manager. Mr. Sauter told me that you cut short your vacation in Lake Placid on the news that Vanguard was going into the ETF business.

Mr. Sauter, whose name is on the patent granted to Vanguard for structuring ETFs as a mutual fund share class, said he tried to explain that the approach was designed to expand the tent of investors who could use Vanguard products. "ETFs would contribute to bringing down costs by isolating institutional investors in transition as well as expanding our funds' reach to retail investors working with an adviser."

Low-cost market exposure is the price of admission for an asset manager today, with each firm sizing up how it can compete, handicapped to Vanguard's corporate structure which inherently drives its products to lower expense ratios. The so-called "core wars" between BlackRock (BLK) Inc. (BLK), SSGA, Vanguard, Charles Schwab Investment Management, Invesco (IVZ) and others have tipped the ETF market to the point where 72% of total U.S. assets of $3.5 trillion are managed for less than 20 basis points.

"Jack was so tied to the mutual fund, but his spirit and ethos permeates the ETF business," said Jim Wiandt, an independent investor and the founder of ETF.com. Mr. Wiandt recalls how you dressed down an advisory board for The Journal of Indexes on the dangers of ETF trading. "He used our own data against us," Mr. Wiandt told me, "but he eventually softened to the fact that ETFs could also be used for long-term investing."

Mr. Wiandt recalls scheduling an event in Philadelphia just to ensure your attendance. To his dismay, old yellow school buses "with duct tape on the seats" showed up to transport attendees between sites. You were thrilled, "like a kid," Mr. Wiandt said, and let out a huge laugh when he jokingly thanked you and Vanguard for the "low-cost vehicles."

May you be remembered as passionately as you lived.

— Ari

Editor's note: Vanguard Group founder John C. Bogle died Jan. 16 at age 89.