Bogle may not love ETFs, but everybody loves Bogle.
John Bogle admirers, including luminaries such as Paul Volcker, Burton Malkiel and three former SEC chairmen, descended on the Museum of American Finance in New York last week to honor the 82-year-old father of the modern index fund.
The world’s first retail index mutual fund, once derided as “Bogle’s Folly” after his company Vanguard Group launched it in 1975, has grown into a $100 billion portfolio. Without the fund’s success, it’s safe to say that there wouldn’t be a U.S. ETF industry that now has $1.164 trillion in assets, a record.
At the heart of Bogle’s sensibility is his aim to put investors first by serving up low-cost index funds that, the numbers tell us, beat out active investment vehicles—in part because they’re so much cheaper. Index ETFs have taken low expenses to a new level, although Bogle worries that investors trade them too heavily, hurting returns.
“I think that John Bogle is a true American hero,” Roger G. Ibbotson, chairman and chief investment officer of Milford, Conn.-based Zebra Capital, said during a break at “The John C. Bogle Legacy Forum” on Wednesday, Feb. 1, adding that Bogle has always challenged conventional wisdom.
“His principles in terms of standing for investors have been formulated in a fashion of elegance and persuasiveness that few Americans have ever before displayed,” said Ibbotson, who is also a management professor at Yale and founder of Ibbotson Associates, a financial research firm that’s now owned by Morningstar.
The Father Of Indexing
Bogle’s obsession with reducing the costs of investment and management of mutual funds started with a 1951 thesis he wrote while an undergraduate at Princeton University.
He argued that fees were too high and that funds ought to be run for investors and investors alone.
His work set him on the path to creating Vanguard, a mutually structured company where fund shareholders are effectively owners of the company.
That innovation eliminated a conflict of interest that exists elsewhere in the money management industry between what’s best for fund holders and what’s best for shareholders of the fund company.
Because of its structure, Vanguard runs its mutual funds and ETFs at cost, consistently making it one of the cheapest providers of investment products.
Although no company in the mutual fund industry has yet copied the mutual structure Bogle pioneered, “Bogle’s Folly” is now just a piece of Vanguard’s success. The company now has $1 trillion of its $1.3 trillion in assets under management in index funds. It’s also the No. 3 ETF sponsor, with assets of $170 billion.
Bogle’s undergraduate thesis also led him to believe that trying to beat the market is, on balance, a fool’s errand. That insight ultimately led him to create The Vanguard 500 Index Fund (VFINX), making it the world’s first retail index fund.
“Bogle is the father of indexing,” Volcker, the head of the Fed from 1979 to 1987, said following a conversation he had with Bogle as part of the meeting in New York. “It is a very strong concept in the market, and deservedly so.”