John Bogle's low-cost evangelism has paid off.
The founder of Vanguard Group has for years preached the advantages of a passively indexed investment strategy, railing against high-cost, active managers that underperform the broad market and new products that fail to act in clients' best interest. His views occasionally put him at odds with his former company, but with news that Vanguard has overtaken Fidelity Investments as the largest asset management company, it appears to have worked.
The Investment Company Institute reported that Vanguard, based in Valley Forge, Pa., had $1.3 trillion in assets under management as of July 31, compared with Fidelity's $1.24 trillion.
"The world has shifted towards bond funds and index funds, both of which speak to Vanguard's strengths," said Russel Kinnel, director of fund research with Morningstar. "Vanguard has a business model that is much more scalable to the present investing environment. Bond and index funds don't have capacity constraints that Fidelity does. Vanguard can hire four or five sub-advisors and tap into their sources of alpha."
Kinnel notes that Vanguard has generally outperformed due to its lower cost pricing structure, which he says allows for a greater margin of error for managers.
