Despite founder John Bogle’s outspoken reservations against the exchange traded fund product, Vanguard has become the third largest ETF provider.
Vanguard has $1.3 trillion in assets under management in index funds, with $170 billion in ETFs, report Alex Ulam and Olly Ludwig for IndexUniverse. [ETFs Taking Market Share from Index Funds]
John Bogle, founder and retired CEO of The Vanguard Group, created his company based on serving low-cost index funds that would beat active funds. [Why Vanguard Founder Doesn’t Like ETFs]
“Bogle is the father of indexing,” Paul Volcker, the head of the Fed from 1979 to 1987, said at a ceremony honoring Bogle at the Museum of American Finance. “It is a very strong concept in the market, and deservedly so.”
As a result of the company’s fund structure, Vanguard’s mutual funds and ETFs are some of the cheapest on the market. For instance, the Vanguard S&P 500 ETF (NYSEArca: VOO) has an expense ratio of just 0.06%.
Nevertheless, Bogle remains a staunch opponent of ETFs, even though 99% of all ETFs are indexed products. Specifically, he believes the intr-day tradability of ETFs to be a fatal flaw since this characteristic would undermine true buy-and-hold investing. [What You Should Know About ETF Bid/Ask Spreads]
“To this day, Jack hates ETFs,” Gus Sauter, Vanguard’s chief investment officer, said in the IndexUniverse report. “Jack views them as solely trading vehicles, and while they can be used that way, I don’t think that the bulk of our investors do use them that way.”
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.