Client Portals

What does an 800-pound gorilla say?2 min read

Jan 19, 2011 - John Osbon ( 3 mins to read)

Whatever it wants.  When the gorilla is Vanguard, the world’s largest mutual fund manager with $1.6 trillion in assets and the fund company that attracted more new assets in 2010 than any other, the gorilla is worth listening to.

What Vanguard has been saying for decades is that investors deserve three fundamental tools for their portfolios: low costs, indexing, and diversification.

Already known as the low-cost provider, Vanguard shook the money management industry this year by lowering fees even farther and introducing 17 new cost-conscious ETFs to complement its mutual fund lineup.

Take VOO, for example, Vanguard’s ETF version of the S&P 500. VOO’s expense ratio is a virtually invisible 6 basis points (that’s six one hundredths of one percent).  That means almost all of the return goes to the investor.  Vanguard simply makes it up on volume.  On $1.6 trillion in assets, even with the skinniest fees, there’s plenty earned to buy bananas.

Vanguard’s low expenses are a core feature in the firm’s brand. The company, led by iconic founder and author Jack Bogle, was also a pioneer in indexing, and over the years has added more and more investment options to provide investors with highly diversified portfolio building blocks.

According to this Bloomberg report, “Vanguard passed Fidelity Investments last year as the biggest mutual-fund manager. It ranks third in ETFs behind BlackRock Inc. and State Street Corp.”

Vanguard CEO Bill McNabb, in his annual comments on the company describes the firm’s expenses as two-thirds lower than 30 years ago. Although change is rampant in the investment business, McNabb advocates some proven, traditional approaches. “For as much change as we’ve experienced, investment fundamentals have not changed. You hear talk about a ‘new normal’ for the economy and for the markets, but the ‘old normal’ applies when it comes to investing: Have a balanced and diversified portfolio. Maintain a long-term perspective. Keep your costs low. Save more than you think you need. These principles have held up through good times and bad, and they will not change,” he says.

And that’s how a gorilla grows to be 800 pounds.

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