View more on these topics

Vanguard founder slams ETFs

Technology-Binary-Data-Tech-Code-700.jpg

Vanguard founder and former chief executive Jack Bogle has criticised the high-trading mentality behind ETFs and claimed non-listed index counterparts are a better alternative.

In an opinion piece for the Financial Times, Bogle, the founding father of index investing, says Vanguard investors in non-listed index funds have seen higher returns than its ETF investors who hold the same underlying portfolio.

Bogle attributes this disparity to the higher trading activity that comes with listed ETFs compared to non-listed index funds.

“Time and again, clear statistical evidence has confirmed that the more investors trade, the more their returns fall short of the stock market return,” Bogle says.

Bogle points out that he created what he likes to call “traditional index funds” and does not agree with the trading mentality behind ETFs, which launched 16 years later in 1993.

While individual investors are the largest holders of Vanguard “traditional index funds”, Bogle says banks and financial intermediaries hold almost 90 per cent of the SPDR S&P 500, the first ETF. He points out redemption rates in the former sits at 8 per cent of assets, while in the latter annual turnover reaches 3,000 per cent.

ETFs account for nearly half all trading on the US stock market, Bogle says.

As a result, he claims traditional index investing has revolutionalised the mutual fund industry, while ETFs have transformed the stock market.

While Bogle is critical of ETFs, he says index investing as a whole has seen inflows of $1.7trn of inflows since 2007, while active funds have seen $747bn of outflows – a trend he says shows no sign of slowing.

Bogle adds that robo-advisers are another disrupter of traditional finance and says they would not have been possible without ETFs.

Recommended

Finance-Concept-Technology-Brain-Money-700x450.jpg

Vanguard: ‘Pure robo-advice cannot work in the UK’

Vanguard says the “pure” robo-advice model prevalent in the US could not work in the UK due to FCA regulation and the role of regulated advice. Last month, Money Marketing revealed Vanguard is preparing to launch a direct-to-consumer offering to rival the likes of Hargreaves Lansdown and Nutmeg. But Vanguard business development manager Rob Fisher […]

5

Nutmeg: ‘We are not threatened by Vanguard’

Online investment manager Nutmeg is not threatened but “excited” at Vanguard’s breakthrough into the UK direct-to-consumer market, Nutmeg chief investment officer Shaun Port says. Earlier this month Money Marketing revealed Vanguard will launch its D2C offering within six months. Port told Money Marketing: “We don’t look this as a threat at all. This is a market […]

Vanguard John James
6

Vanguard set to compete with Hargreaves on D2C

Vanguard, one of the world’s largest fund groups, has its sights on the likes of Hargreaves Lansdown and Nutmeg as it prepares to launch a direct-to-consumer offering. Separately, the fund group known for its low-cost passives is also looking to expand its active investments with the launch of a global fund range next year. Speaking […]

The Investment Clock: Keep calm and Macron!

Trevor Greetham, Head of Multi Asset In a marked contrast to the surge in risk sentiment that followed President Trump’s election in November, markets greeted Emmanuel Macron’s victory in the French presidential election with satisfaction and relief, rather than euphoria. After rallying strongly on opinion polls that accurately predicted the outcome, the euro held onto […]

Jelf flexible benefits

In Focus: How to choose a flexible benefits provider — seven top tips

Jelf Employee Benefits looks at some of the key considerations employers should think about when reviewing and choosing a flexible benefits provider. Choosing the right benefits for your employees is one thing but delivering a successful employee benefits strategy is about understanding the complete picture and delivering it in a personalised way so that it resonates with each and every individual in your business. 

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There is one comment at the moment, we would love to hear your opinion too.

Leave a comment