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Rekenthaler Report

Can Vanguard Remain Alone?

For the first time, competitors are starting to threaten its brand.

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Solo Act
Historically, Vanguard has competed in a league of its own. Its rivals have battled over one segment of the marketplace, while Vanguard has controlled the other all by its lonesome. Only Vanguard treated funds as commodities. If competently run, suggested the company, the performances of funds within a given category converge. What counts are costs. And nobody beat Vanguard for low expenses.

Every other longtime fund company has claimed to possess the secret sauce. Even Dimensional Fund Advisors, long regarded as Vanguard's challenger because it invests according to rules, cites academic sources for its investment approach, and keeps its costs modest, sells performance. In the industry jargon, DFA sells betas (what assets to own) rather than alphas (manager brilliance), but either way, it promises that it knows more than the overall market. Vanguard does not--at least in its passive business, which now accounts for nearly 80% of assets under management.

John Rekenthaler does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.