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For Vanguard, Every Year Is a Record

At least this time, there is some consolation for the others.

John Rekenthaler, 04/14/2017

Making History
Vanguard is Major League Baseball in the 1990s: the steroids era. One year Roger Maris’s home-run record goes, the next year that record is beaten, the following year somebody gets 70. What is possible is constantly redefined.

In 2014, the company became the first to attract more than $200 billion of net new flows into its U.S.-based mutual funds and exchange-traded funds—$219 billion, to be precise. The next year, it bumped that to $230 billion, then to $277 billion in 2016. This year it will obliterate that mark. Indeed, unless the trend changes dramatically, Vanguard will hit 100 home runs for the season.

The good news for Vanguard’s rivals—to the extent that the news may be called good and they may be termed rivals—is that for the first time in three years, they are also gaining assets. Not most of them, to be sure. The supertanker continues to take on water. However, for the first time in three years, Vanguard is not attracting more than 100% of the industry’s inflows. There is a breath of hope for the others.

Singing the Blues
Here’s the picture, with Vanguard in blue and the rest of the U.S. fund industry in red (no political commentary intended).

  source: Morningstar 

It's not so impressive at first glance. The 2017 bar closely resembles 2011’s. But of course, this is April, at which point the enormity of Vanguard’s accomplishment begins to loom. Morningstar estimated $116 billion for Vanguard’s first-quarter flows; Vanguard reported $121 billion. (The preliminary differences will be reconciled as the final numbers are reported.) Either way, that suggests that Vanguard’s full-year figures will be more than $400 billion, as there isn’t much seasonality to the company’s sales. One hundred home runs indeed.

The company thrived across the board. Stock funds, bond funds. Domestic funds, international funds. Taxable funds, municipal-bond funds. Unlike other fund companies, Vanguard relies neither on a handful of star funds nor on a reputation for running one asset class. Vanguard alone in the industry has built a true brand, and that brand extends across all investment types.

A Mile Wide
However, there is a theme to Vanguard’s top sellers: breadth. Four of the company’s five most-popular funds during this year’s first quarter have “total” in their names. Those four are Vanguard’s most broadly diversified index offerings, and the fifth, Vanguard 500 Index Investor VFINX, isn’t far behind. Vanguard’s inflows follow the familiar "core-and-explore" pattern: Most of the money goes into mainstream, predictable funds that hold large-company stocks, or investment-grade bonds.

is vice president of research for Morningstar.

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