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Rekenthaler Report

Unlikely Cousins

Curiously, the fund industry's most popular fund company resembles its least popular firm.

More Similar Than Different
Fund-industry giants Vanguard and American Funds would seem to be polar opposites. Vanguard is known for indexing, selling directly to investors, and impressing financial reporters. American Funds, in contrast, has no index funds, distributes almost solely through financial advisors, and is notoriously media shy. Vanguard has long since diversified away from its starting point of running retail equity mutual funds. It now is a bond-fund powerhouse with millions of 401(k) shareholders and a stable of exchange-traded funds. American Funds, in contrast, mostly just runs stock funds, has less than 1% market share in the 401(k) industry, and is not in the ETF business.

In other words, Vanguard has mostly been on the right side of history and American Funds has not. (The exception being distribution, where there is no right side of history, as companies have been able to succeed both as direct marketers and by working through advisors). The money tells the story. Over the past three years, Vanguard has led the United States (and indeed the world) in incoming fund assets, enjoying more than $350 billion of net inflows into its mutual funds and ETFs. No other company has been close; at $160 billion, PIMCO has been a distant second. Poor American Funds, on the other hand, has been by far the industry's biggest loser over that time period, with almost $200 billion exiting its doors.