The Vanguard Group is an American investment management company based in Malvern, Pennsylvania, that manages approximately $1.8 trillion[1] in assets. It offers mutual funds and other financial products and services to individual and institutional investors in the United States and abroad. Founder and former chairman John C. Bogle is credited with the creation of the first index fund available to individual investors, the popularization of index funds generally, and driving costs down across the mutual fund industry.
Vanguard is unusual among mutual-fund companies since it is owned by the funds themselves. In this structure, each fund contributes a set amount of capital towards shared management, marketing, and distribution services. The company says that this structure better orients management towards shareholder interests.[2] Other mutual-fund sponsors are expected simultaneously to make a profit for their outside owners and provide the most cost-effective service to funds for their shareholders.
The Vanguard Group, Inc. is one of the most successful mutual fund companies in the United States. Managing more than $520 billion worth of investors' money, the firm provides an entire family of mutual funds from real estate to bond funds. Its Vanguard 500 Index Fund, a portfolio of stocks that tracks the broad market, is the largest of the 103 domestic funds managed by the firm and is among the largest of U.S. mutual funds. Vanguard's family of mutual funds maintains one of the lowest expense ratios--the relation of management costs for a fund to the amount of assets in the fund--within the financial services industry.
If you buy low and sell high, invest for the long term, resist the urge to panic, and generally disapprove of those whippersnappers at Fidelity, then you may end up in the Vanguard of the financial market. The Vanguard Group offers individual and institutional investors a line of popular mutual funds and brokerage services. Claiming some $1.4 trillion of assets under management, the firm is battling FMR (aka Fidelity) for the title of largest retail mutual fund manager on the planet. Vanguard's fund options include more than 200 stock, bond, mixed, and international offerings, as well as variable annuity portfolios; its Vanguard 500 Index Fund is one of the largest in the US. Vanguard was founded in 1975.
Under Brennan's leadership, Vanguard maintained its traditional low costs while expanding operations to remain competitive in the volatile financial services industry. Internationally, the company established Vanguard Investments Australia in 1997 to serve institutional investors. A year later the division began to offer six indexed funds to individual customers. Also in 1998 the company added three indexed mutual funds to its Vanguard Group Ireland offerings. Other notable new events in the mid-1990s included the launch of Vanguard Fiduciary Services in 1998. The unit provided investment management and advisory services to such organizations as foundations, endowments, and tax-exempt organizations. At the end of its first year of operations, the fiduciary group had more than 50 clients and managed about $4.2 billion in assets. The Personal Financial Services (PFS) division, started in 1997, was made up of Vanguard Asset Management and Trust Services and Personal Financial Planning. PFS grew quickly, and by the end of 1998 the unit managed or had produced advisory plans for about $10 billion in assets, an increase of 100 percent since the end of 1997.
Vanguard had an outstanding year in 1998, thanks in large part to the U.S. stock market, which experienced a fourth consecutive year of gains exceeding 20 percent. In 1998 alone, Vanguard added more than two million new accounts, boosting its total to more than 12 million by the end of the year. The firm's share of U.S. mutual fund assets grew to 7.9 percent, more than twice its market share of 3.8 percent a decade earlier. In addition to adding three new index funds to U.S. investors, Vanguard introduced its 13th state tax-exempt municipal bond fund, launched online trading capabilities as part of the services offered by Vanguard Brokerage Services, and revamped its web site to provide individual clients the capability to open new accounts, view account balances and change options, and access information about Vanguard's funds. Amid all the activity, Vanguard managed to keep its costs low. According to Lipper Inc., which tracks fund performance, Vanguard's operating costs averaged 0.28 percent of assets during 1998, compared to an industry average of 1.25 percent.
As the second largest mutual fund company in the world in 1998, Vanguard received recognition for its innovations and performance. The firm's web site was elected the best mutual fund site of 1998 by Institutional Investor magazine's weekly newsletter, Financial NetNews. Vanguard also made it onto InformationWeek's list of top technology innovators, and Working Mother listed Vanguard as one of the best companies for working mothers. In addition, the firm's 1998 Client Satisfaction Survey determined that more than 99 percent of its individual investor clients were pleased with Vanguard and would recommend the firm to others.
Though Vanguard's financial success continued in the late 1990s, the firm experienced some internal upheaval. Vanguard's board of directors, including Bogle's successor as CEO, sought to force John Bogle into retirement when he reached the age of 70 in May 1999. Though the company had a policy requiring employees who turned 70 to retire, Bogle desired to remain on the board and protested the decision. Employees and investors alike voiced their outrage at the attempted ousting of the legendary founder. The dispute continued through the summer, and in September the board relented, offering Bogle the opportunity to remain on the board. Surprisingly, Bogle turned down the offer. Instead, Bogle continued to work at Vanguard as the head of the newly formed Bogle Financial Markets Research Center.
Heading into the new millennium, Vanguard continued to forge ahead. According to consultancy and fund-tracking firm Financial Research Corporation, Vanguard had net sales of about $45.9 billion in 1999, making it the mutual fund industry's leader, in terms of long-term fund sales, for the fourth consecutive year. In addition, Vanguard's flagship Vanguard 500 Index Fund was on the verge of displacing Fidelity Magellan Fund from the top spot as the world's largest mutual fund in early 2000. Magellan had been the largest mutual fund for nearly a dozen years and in 1992 was three times the size of the Vanguard 500 Index Fund. From 1995 to 2000, however, Vanguard's fund grew quickly, outperforming many actively managed funds and reporting gains of more than 28 percent a year. By early 2000, Vanguard 500 had more than $100 billion in assets.
To maintain its leadership position, Vanguard aimed to increase its international presence and to continue offering a full breadth of stocks, bonds, and mixed funds to the investing public. The company announced plans to add a socially responsible mutual fund to its long list of offerings by early 2000; the Vanguard Calvert Social Index Fund would be the first socially responsible fund offered by a major fund company. Vanguard also intended to invest more energy into its actively managed funds, which did not fare particularly well in the late 1990s, to maintain a better balance of financial offerings. Additionally, industry analysts believed the heyday of the index fund was passing, and Vanguard did not wish to be left behind. By the end of February 2000, for example, more than 75 percent of actively managed funds were outperforming the S & P 500, a feat that had not been matched since 1977. In March 2000 Vanguard said it planned to offer two new actively managed funds and formed a partnership with Turner Investment Partners to reorganize the Turner Growth Equity Fund into the Vanguard Growth Equity Fund. With managed assets exceeding $520 billion and a long history of placing the needs of its investor-shareholders first, Vanguard seemed likely to continue growing and dominating the global mutual fund industry.
Principal Competitors: FMR Corp.; Barclays PLC; Mellon Financial Corporation; Merrill Lynch & Co., Inc.
For his undergraduate thesis at Princeton, John C. Bogle conducted a study in which he found that around three quarters of mutual funds did not earn any more money than if they invested in the largest 500 companies simultaneously, using the S&P 500 stock market index as a benchmark. In other words, three out of four of the managers could not pick better specific "winners" than someone passively holding a basket of the 500 largest public U.S. companies. The managers could pick specific stocks which would do as well as picking the 500 largest stocks (essentially doing as well as random chance would dictate), but the cost to pay their expenses, as well as the high taxes incurred through active trading, resulted in underperforming the index.
Statistics:
Private Company
Incorporated: 1974 as The Vanguard Group of Investment Companies
Employees: 10,500
Sales: $1.2 billion (1998 est.)
NAIC: 52392 Portfolio Management (pt); 52393 Investment Advice
Key Dates:
1929: Walter L. Morgan forms the Wellington Fund.
1974: John C. Bogle establishes The Vanguard Group of Investment Companies.
1975: The Vanguard Group opens for business.
1995: The Vanguard Index 500 Fund becomes the company's largest fund.
1996: John J. Brennan becomes CEO.
1998: Company expands to the Malvern, Pennsylvania, area.
Key People
• Chairman, President, and CEO: F. William (Bill) McNabb III
• Managing Director and CIO: Paul Heller
• Managing Director, Planning and Development Group: Michael S. Miller
Address:
100 Vanguard Boulevard
Malvern, Pennsylvania 19355
U.S.A.
Vanguard is unusual among mutual-fund companies since it is owned by the funds themselves. In this structure, each fund contributes a set amount of capital towards shared management, marketing, and distribution services. The company says that this structure better orients management towards shareholder interests.[2] Other mutual-fund sponsors are expected simultaneously to make a profit for their outside owners and provide the most cost-effective service to funds for their shareholders.
The Vanguard Group, Inc. is one of the most successful mutual fund companies in the United States. Managing more than $520 billion worth of investors' money, the firm provides an entire family of mutual funds from real estate to bond funds. Its Vanguard 500 Index Fund, a portfolio of stocks that tracks the broad market, is the largest of the 103 domestic funds managed by the firm and is among the largest of U.S. mutual funds. Vanguard's family of mutual funds maintains one of the lowest expense ratios--the relation of management costs for a fund to the amount of assets in the fund--within the financial services industry.
If you buy low and sell high, invest for the long term, resist the urge to panic, and generally disapprove of those whippersnappers at Fidelity, then you may end up in the Vanguard of the financial market. The Vanguard Group offers individual and institutional investors a line of popular mutual funds and brokerage services. Claiming some $1.4 trillion of assets under management, the firm is battling FMR (aka Fidelity) for the title of largest retail mutual fund manager on the planet. Vanguard's fund options include more than 200 stock, bond, mixed, and international offerings, as well as variable annuity portfolios; its Vanguard 500 Index Fund is one of the largest in the US. Vanguard was founded in 1975.
Under Brennan's leadership, Vanguard maintained its traditional low costs while expanding operations to remain competitive in the volatile financial services industry. Internationally, the company established Vanguard Investments Australia in 1997 to serve institutional investors. A year later the division began to offer six indexed funds to individual customers. Also in 1998 the company added three indexed mutual funds to its Vanguard Group Ireland offerings. Other notable new events in the mid-1990s included the launch of Vanguard Fiduciary Services in 1998. The unit provided investment management and advisory services to such organizations as foundations, endowments, and tax-exempt organizations. At the end of its first year of operations, the fiduciary group had more than 50 clients and managed about $4.2 billion in assets. The Personal Financial Services (PFS) division, started in 1997, was made up of Vanguard Asset Management and Trust Services and Personal Financial Planning. PFS grew quickly, and by the end of 1998 the unit managed or had produced advisory plans for about $10 billion in assets, an increase of 100 percent since the end of 1997.
Vanguard had an outstanding year in 1998, thanks in large part to the U.S. stock market, which experienced a fourth consecutive year of gains exceeding 20 percent. In 1998 alone, Vanguard added more than two million new accounts, boosting its total to more than 12 million by the end of the year. The firm's share of U.S. mutual fund assets grew to 7.9 percent, more than twice its market share of 3.8 percent a decade earlier. In addition to adding three new index funds to U.S. investors, Vanguard introduced its 13th state tax-exempt municipal bond fund, launched online trading capabilities as part of the services offered by Vanguard Brokerage Services, and revamped its web site to provide individual clients the capability to open new accounts, view account balances and change options, and access information about Vanguard's funds. Amid all the activity, Vanguard managed to keep its costs low. According to Lipper Inc., which tracks fund performance, Vanguard's operating costs averaged 0.28 percent of assets during 1998, compared to an industry average of 1.25 percent.
As the second largest mutual fund company in the world in 1998, Vanguard received recognition for its innovations and performance. The firm's web site was elected the best mutual fund site of 1998 by Institutional Investor magazine's weekly newsletter, Financial NetNews. Vanguard also made it onto InformationWeek's list of top technology innovators, and Working Mother listed Vanguard as one of the best companies for working mothers. In addition, the firm's 1998 Client Satisfaction Survey determined that more than 99 percent of its individual investor clients were pleased with Vanguard and would recommend the firm to others.
Though Vanguard's financial success continued in the late 1990s, the firm experienced some internal upheaval. Vanguard's board of directors, including Bogle's successor as CEO, sought to force John Bogle into retirement when he reached the age of 70 in May 1999. Though the company had a policy requiring employees who turned 70 to retire, Bogle desired to remain on the board and protested the decision. Employees and investors alike voiced their outrage at the attempted ousting of the legendary founder. The dispute continued through the summer, and in September the board relented, offering Bogle the opportunity to remain on the board. Surprisingly, Bogle turned down the offer. Instead, Bogle continued to work at Vanguard as the head of the newly formed Bogle Financial Markets Research Center.
Heading into the new millennium, Vanguard continued to forge ahead. According to consultancy and fund-tracking firm Financial Research Corporation, Vanguard had net sales of about $45.9 billion in 1999, making it the mutual fund industry's leader, in terms of long-term fund sales, for the fourth consecutive year. In addition, Vanguard's flagship Vanguard 500 Index Fund was on the verge of displacing Fidelity Magellan Fund from the top spot as the world's largest mutual fund in early 2000. Magellan had been the largest mutual fund for nearly a dozen years and in 1992 was three times the size of the Vanguard 500 Index Fund. From 1995 to 2000, however, Vanguard's fund grew quickly, outperforming many actively managed funds and reporting gains of more than 28 percent a year. By early 2000, Vanguard 500 had more than $100 billion in assets.
To maintain its leadership position, Vanguard aimed to increase its international presence and to continue offering a full breadth of stocks, bonds, and mixed funds to the investing public. The company announced plans to add a socially responsible mutual fund to its long list of offerings by early 2000; the Vanguard Calvert Social Index Fund would be the first socially responsible fund offered by a major fund company. Vanguard also intended to invest more energy into its actively managed funds, which did not fare particularly well in the late 1990s, to maintain a better balance of financial offerings. Additionally, industry analysts believed the heyday of the index fund was passing, and Vanguard did not wish to be left behind. By the end of February 2000, for example, more than 75 percent of actively managed funds were outperforming the S & P 500, a feat that had not been matched since 1977. In March 2000 Vanguard said it planned to offer two new actively managed funds and formed a partnership with Turner Investment Partners to reorganize the Turner Growth Equity Fund into the Vanguard Growth Equity Fund. With managed assets exceeding $520 billion and a long history of placing the needs of its investor-shareholders first, Vanguard seemed likely to continue growing and dominating the global mutual fund industry.
Principal Competitors: FMR Corp.; Barclays PLC; Mellon Financial Corporation; Merrill Lynch & Co., Inc.
For his undergraduate thesis at Princeton, John C. Bogle conducted a study in which he found that around three quarters of mutual funds did not earn any more money than if they invested in the largest 500 companies simultaneously, using the S&P 500 stock market index as a benchmark. In other words, three out of four of the managers could not pick better specific "winners" than someone passively holding a basket of the 500 largest public U.S. companies. The managers could pick specific stocks which would do as well as picking the 500 largest stocks (essentially doing as well as random chance would dictate), but the cost to pay their expenses, as well as the high taxes incurred through active trading, resulted in underperforming the index.
Statistics:
Private Company
Incorporated: 1974 as The Vanguard Group of Investment Companies
Employees: 10,500
Sales: $1.2 billion (1998 est.)
NAIC: 52392 Portfolio Management (pt); 52393 Investment Advice
Key Dates:
1929: Walter L. Morgan forms the Wellington Fund.
1974: John C. Bogle establishes The Vanguard Group of Investment Companies.
1975: The Vanguard Group opens for business.
1995: The Vanguard Index 500 Fund becomes the company's largest fund.
1996: John J. Brennan becomes CEO.
1998: Company expands to the Malvern, Pennsylvania, area.
Key People
• Chairman, President, and CEO: F. William (Bill) McNabb III
• Managing Director and CIO: Paul Heller
• Managing Director, Planning and Development Group: Michael S. Miller
Address:
100 Vanguard Boulevard
Malvern, Pennsylvania 19355
U.S.A.