The Most Stunning Fact About Vanguard’s ETF Flows

Susan Dziubinski: All right, so talk a little bit, Dan, about flows last year at Vanguard’s funds, the index funds versus the active funds. How would you describe the story on the flows front?

Daniel Sotiroff: So to sum it up, it’s not a problem, right? Vanguard’s doing great in this department. Unlike a lot of other managers that are sort of struggling, Vanguard is actually winning and winning by a lot. So if you add up their US mutual funds and ETFs, Vanguard brought in $222 billion last year. It’s a mountain of money that was second only to BlackRock, which I had at about $285 billion. So they may not be first place, but there isn’t a lot to complain about there. They’re doing great.

When you dig beneath the surface a little bit more, it gets a little bit more nuanced. Its ETFs are really proven to be popular, right? No surprise. A lot of them are index-tracking, and they’re coming out with a lot of the newer fixed-income type stuff now. Vanguard ETFs took in $306 billion. Its mutual funds lost $84 billion. So that’s really just endemic of a much broader trend we’re seeing across the asset-management industry. A lot of people are leaving mutual funds and getting into low-cost, really more tax-efficient ETFs. Those are the two driving forces, taxes and fees.

But there’s another really interesting point here, and I’m going to steal a quote from Ryan Jackson who wrote this in his article actually a few weeks ago, about the end of year flows in 2024: Vanguard S&P 500 ETF VOO inhaled $117 billion itself.

Think about it. $117 billion of one ETF. That destroyed the previous individual ETF record of $51 billion and exceeded the 2024 flows to every ETF provider except iShares and naturally … I mean, that’s just a stunning number for a single ETF to take in, and it just shows you what is going on in this industry—the shift away again from actively managed mutual funds into the passively managed tax-efficient ETFs. And so that just really underscores it.

• Vanguard S&P 500 ETF VOO
• Vanguard PRIMECAP Inv VPMCX
• Vanguard PRIMECAP Core Inv VPCCX

So to circle back again to Primecap like we were talking about before, so the performance hasn’t been great over the last couple of years, and I think the flows are kind of starting to show that, right? So Primecap VPMCX and Primecap Core VPCCX, remember that Vanguard opened those up in June because flows performance haven’t been great. So it’s like they’ve got capacity, they can take in some new money. So they opened those back up in June, but the flows really haven’t been there. They’ve continued to lose money ever since then. Primecap, this is the original Primecap, lost about $34 billion over, or excuse me, $3.4 billion. Let me correct that. $3.4 billion over those six months. Primecap Core lost around $950 million, close to a billion dollars over that period. So again, they’re struggling a little bit. This isn’t something that threatens the viability of the funds. These are very big funds, so they can absorb that a little bit, but it is something to keep an eye on, and we’re watching.

And the other important thing with flows is you think about capital gains distributions because a lot of that can trigger managers to have to sell positions. Hasn’t been a big problem so far, but again, something worth keeping an eye on if you are invested in those funds.