Understanding What Makes Vanguard So Successful
Low costs help, but that’s only part of the explanation.
Bloomberg, October 12, 2017
There’s never been a money-management business like Vanguard Group Inc. Any time it enters a new market, competitors see their margins demolished via the so-called Vanguard effect. No other firm controls costs the way it does. And since the financial crisis, no other firm has attracted more assets more quickly. Since 2009, Vanguard has expanded from about $1 trillion in assets under management to almost $5 trillion.
Only Blackrock Inc. has more assets under management, but it has only doubled in size during the same time period. Assuming current growth rates hold, Vanguard should pass Blackrock in size.
You might guess that the success of the Malvern, Pennsylvania-based company would be closely studied by many interested parties. Academics should be cranking out white papers by the thousands; competitors should be imitating their every move; business school case studies should be ubiquitous. 1
Nor have competitors come to grips with what makes Vanguard unique. The reasons for its success are many and varied. Those who shrug it off as the result of low fees and passive funds have missed the bigger picture. If price were the sole reason for success, then Econ 101 tells us that competitors would have simply cut their fees in order to recapture lost market share. But this hasn’t happened; if anything, Vanguard’s share has increased, and as the New York Times reported, Vanguard is growing faster than all its competitor combined.
Thus, we must conclude this phenomenon is much more than merely price-driven.
Continues at: Understanding What Makes Vanguard So Successful