Sunday, June 17, 2012

What sour climate? Vanguard is thriving

Go figure. A dozen years of disappointing stock returns have soured investors on professional money managers, especially ones who charge high fees for their ability to pick winning stocks,Businesweek writes.  For Vanguard Group, which sells mainly index funds at one-fifth the industry’s average fee, investor angst has been a windfall. Vanguard attracted $48 billion in deposits in the first quarter, the most in its 38-year history, and roughly one-third of all the money that went into mutual funds and exchange-traded funds (ETFs). “The world is coming around to our way of doing things,” says CEO F. William McNabb in his office on Vanguard’s suburban campus, which looks like a no-frills community college.

Vanguard funds charge an average fee of 16¢ on every $100 invested, compared with 79¢ for the industry as a whole, data from analyst Lipper show. Stock market returns that averaged 1.2 percent a year since 2000 and ultralow interest rates have forced investors to be more aware of such fees, says Burton Greenwald, a mutual fund consultant based in Philadelphia. “These days people are looking at every crumb they can pick up,’’ he says.

While Vanguard offers actively managed funds, it has never emphasized stockpicking or promoted star managers. It is best known for its index funds, which are designed to match various market benchmarks, such as the Standard & Poor’s 500-stock index. That has helped Vanguard benefit from a general loss of confidence in the financial industry since the 2008 credit crisis,…

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