Vanguard

Vanguard Group Inc. is already the largest U.S. stock and bond mutual fund manager, and now the firm has set out to conquer the ETF industry, one sector at a time. Charles Stein for Bloomberg reports that Vanguard is the third-largest sponsor of ETFs, and has captured more than 30% of the money flowing into the business this year by charging an average fee of 0.15%; the industry average is 0.54%.

Vanguard now has $77 billion in ETFs, after inflows of $17.8 billion this year. The firm’s share of the market rose to 11%, up from 8.5% at the end of last year. (How to choose ETFs).

Their strategy of charging the lowest in fees is garnering the interest of many investors who are educated on the possibility that fees can cut into principal and earnings. (What else is important when selecting ETFs?).

But Vanguard has something else interesting at play: the firm’s founder, John Bogle, has been vocal in his criticism of ETFs. His chief complaint is that they encourage short-term trading. Bogle stepped down as Vanguard’s CEO in 1996.

For more stories about ETFs, visit our ETF 101 category. Among Vanguard’s lineup of funds include:

• Vanguard Emerging Markets ETF (NYSEArca: VWO): up 68.6% year-to-date
  

• Vanguard Europe Pacific ETF (NYSEArca: VEA): up 25.3% year-to-date

• Vanguard REIT Index ETF (NYSEArca: VNQ): up 15.4% year-to-date

Many ETFs have been trending higher in recent weeks, says Gary Gordon for ETF Expert. The pattern of the funds recovering indicates that while investors are more willing to take on risk than they were a year ago, there is still some fear lingering.

The stimulus package is proving to lead to increasing business access to credit and government-stimulated GDP.

Some of the ETFs that have been on the move by varying degrees in the last month or so include:

• iShares Investment Grade Bond (LQD)
• iShares High Yield Junk (JNK)
• SPDR International Treasury Bond (BWX)
• JP Morgan Emerging Market Bond (EMB)
• iShares S&P Preferred Index (PFF)
• iShares Lehman Treasury 20-Year Treasury Bond (TLT)
• Vanguard Total U.S. Market (VTI)
• Vanguard Developed Europe Pacific (VEA)
• Vanguard MSCI Emerging Markets (VWO)

TLT’s presence on the list is evidence that there’s still some worry hanging around. Treasury debt prices rose on Wednesday, in fact, as investors wondered whether the recovery had staying power, reports  John Parry for Reuters. Investors also don’t seem to be up for taking on much risk via commodities, Gordon points out.

There will still be market pullbacks and corrections as well as profit-taking, but pick your spots. There are several areas that are in uptrends – you just have to look for them. At ETF Trends, we use the 200-day-moving-average to spot market trends and patterns.

For more stories about trend following, visit our trend following category.

Europe didn’t really have problems in subprime mortgages, but nonetheless, the effects of the United States’ problems were far-reaching. The economies of Europe are seen as tightly linked to those of the rest of the world, writes Jack Ewing for Spiegel Online International.

Bankruptcies are up 11% on the continent. Unemployment reached 7.4% in December compared to 6.8% a year earlier. The International Monetary Fund (IMF) predicts that output in the European zone may fall by 2% this year.

What are the problems?

• One issue is that there is no single government to stand up and create a coherent rescue plan. The European Central Bank has broad powers over the economy, but it has fewer policy tools like the ones implemented by the U.S. Federal Reserve.
• Europe does not have the necessary institutions with a clear mandate to respond to banking problems on a regional level. The union probably needs a single securities and bank regulator instead of a hodgepodge of national bodies, and there are talks of creating a Europe-wide deposit insurance fund.
• The EU is the United States’ largest trading partner, as well as a hotspot for Asian exports. Much of Europe is dependent on exports. Unfortunately, slumping exports, coupled with lower consumer spending, has weaker companies across Europe closing up shop. But even the healthy companies are struggling to get by, too.
• In poorer European countries, some nations have large current account deficits and they are now bogged down by the cost of repaying loans that have grown after depreciating currencies. It is seen that some countries with weakened currencies want to adopt the euro to protect themselves from further depreciations.

Europe has some competitive advantages, such as their fervent investment in nuclear, solar and wind power on top of a history of energy conservation, which makes them less vulnerable to oil shocks. Their consumer debt is also rather low and more conservative lending practices could led to a faster recovery of their financial institutions.

British Prime Minister Gordon Brown, for his part, urged Congress to “seize this moment” and pull together to fight the recession, global climate change and thwart Iran’s nuclear ambitions, reports Ben Pershing for The Washington Post. He also pushed for an agreement on rules and standards for all banks, ahead of the G-20 summit in April.

• Vanguard Europe Pacific ETF (VEA): down 17.1% in the last month
• BLDRs Europe 100 ADR Index Fund (ADRU): down 17.9% in the last month
• Vanguard European ETF (VGK): down 18.7% in the last month
• PowerShares FTSE RAFI Europe Portfolio (PEF): down 18% in the last month
• PowerShares FTSE RAFI Europe Small-Mid Portfolio (PWD): down 13.9% in the last month

Figures released in mid-August showed that the euro-zone economy shriveled to an annualized rate of 0.8% during the second quarter. It was the biggest reversal since 2001.

Purchasing and manufacturing data are reflecting this slump, consumer confidence is low, and business confidence within the three largest European economies – Germany, France and Italy – is lagging, reports The Economist. Germany’s downturn is causing particular dismay, since it was one of the few countries that sidestepped the global house-price boom.

In general, the sentiment for the global credit crunch is blamed on America. Many Europeans, Germans in particular, feel that they do not deserve this reversal of fortune, as they did not create this situation. But one economist says that Germany profited from the credit-fueled boom and were part of the game.

Elsewhere in Europe, housing mania took hold, but Ireland’s bust might be the most dramatic of all. Its GDP grew 6% in 2007, but is on pace to shrink this year.

Euro inflation fell to 3.8% in August from a record high of 4% in June and July, offering some glimmer of hope.

• Vanguard Europe Pacific ETF (VEA), down 16.8% year-to-date
• BLDRs Europe 100 ADR Index Fund (ADRU), down 17.7% year-to-date
• Vanguard European ETF (VGK), down 17.8% year-to-date
• PowerShares FTSE RAFI Europe Portfolio (PEF), down 20.8% year-to-date
• PowerShares FTSE RAFI Europe Small-Mid Portfolio (PWD), down 21.6% year-to-date

While the provider claims that an ETF conversion is neither the goal nor the reason for changing this leading fund’s strategy, it is not out of the question. In fact, Vanguard’s two internationally diversified ETFs are doing well as far as attracting assets and rank among the top 10 largest international ETFs: the FTSE All-World ex-US ETF (VEU) and the EuroPacific ETF (VEA). The performance hasn’t been so hot this year, though. Respectively, they’re down 19% and 18.9% year-to-date.

Dan Serra for Index Universe also points out that Vanguard holds a patent protecting its use of forming a second share class for ETFs, which makes this process relatively low-cost and pain-free. Among the potential reasons for an ETF transformation would include instant brand recognition for portfolios, since anything broad-based by Vanguard is going to attract assets; it would be easy to use; create more direct market competition, particularly against the market leader, the iShares MSCI EAFE (EFA); and there would be better diversification in one fund.