Going Out On Top

February 25, 2008

Going out on top is right, Murray: Brennan leaves Vanguard with the company firing on all cylinders.

Consider just a few facts:

  • Assets quadrupled during Brennan's tenure.
  • The company ended 2007 as the best-selling mutual fund company in the world.
  • The company is fast becoming a leader in ETFs.

Meanwhile, performance has been strong, with the index funds tracking well and the active funds actually beating --- or at least tying --- the index products.

Costs are town, capital gains distributions are low, etc. All-in-all, it's really a pretty remarkable result.

The question, of course, is where Vanguard goes from here. The company is moving aggressively into the institutional market, and the appointment of McNabb (who's headed up the institutional and international efforts at Vanguard) suggests that will continue.  Vanguard's also making an aggressive play for the advisor market through its ETF platform, and is learning quickly how to communicate with advisors and help them grow their business.

Challenges?  It doesn't look like anyone is really going to challenge Vanguard on costs. With the company's size and scope, that kind of challenge may be almost impossible at this point. 

The advance of Fundamental Indexing and the other beat-the-market indexing variants could challenge Vanguard around the edges.

Beyond that, a sustained economic and market downturn could be difficult, as Vanguard would risk redemptions in a down market and potential capital gains exposure in its more established funds (and their ETF variants).

And finally, there's the great transition of the Baby Boomers from accumulation to distribution.  A lot of Boomers have built up huge assets in Vanguard funds, and the company is going to have to work with them as they try to monetize those assets, produce more income and lower the volatility of returns.

It should be interesting to watch.


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