Vanguard gets record $163.4 billion in 2014 investor cash

Indexing pioneer attracts some funds from Pimco outflows after Bill Gross' departure

Nov 6, 2014 @ 11:19 am

By Bloomberg News

Vanguard Group Inc., the largest U.S. mutual fund firm, attracted more money from investors in the first 10 months of 2014 than it has in any full calendar year in its 39-year history.

The company received $163.4 billion in subscriptions in its mutual funds and exchange-traded funds through October, John Woerth, a spokesman for the Valley Forge, Pa.-based firm, said Wednesday in an e-mail. The firm got $141 billion in 2012, its previous high.

The firm attracted $24.5 billion in October, its second-highest monthly inflow in history.

(Related: Pimco Total Return suffers $27.5 billion asset drop in October)

Vanguard, which unseated Fidelity Investments as the biggest mutual fund company four years ago, is benefiting from investors' preference for indexing over active management. Equity mutual funds that track indexes attracted $85.8 billion this year through September, compared with $2.5 billion for funds that pick stocks, according to Chicago-based Morningstar Inc. Stock ETFs, which are almost exclusively passive products, received $87.2 billion in subscriptions.

“The investing public is smart, recognizing that costs matter,” Mr. Woerth wrote in an e-mail. “As such they are beating a path to the low-cost leader's door.”

Vanguard's mutual funds charge an asset-weighted average of 15 cents for every $100 invested, compared with 70 cents for the mutual fund industry, Morningstar data show. The firm was founded by John Bogle in 1975 on the idea that most professionals can't beat the market.

BUFFET'S BACKING

Berkshire Hathaway Inc. Chairman Warren Buffett gave the company an endorsement in March in his annual letter to shareholders. Mr. Buffett said he told the trustee managing his affairs that after his death he wanted 90 % of the cash he leaves for his wife put into a very low-cost Standard & Poor's 500 Index fund.

“I suggest Vanguard's,” he wrote. The results are likely to be “superior to those attained by most investors — whether pension funds, institutions or individuals — who employ high-fee managers.”

The firm's Vanguard 500 Index Fund tracking the U.S. benchmark took in four times as much money this year from March through June as it did in the same period in 2013, a surge the company attributed to Mr. Buffett's backing.

Vanguard, like other asset managers, has also attracted some of the cash that investors pulled from Pacific Investment Management Co. since the surprise resignation of co-founder Bill Gross on Sept. 26. Mr. Gross' $170.9 billion Pimco Total Return Fund lost $51 billion to redemptions in the past two months.

BOND FUNDS

The $106.7 billion Vanguard Total Bond Market Index Fund (VBMFX) attracted $4.4 billion in deposits in October, according to Morningstar estimates.

The total bond-market fund and its ETF variation won more than $4.4 billion in combined subscriptions in September, according to Daniel Wiener, editor of the New York-based newsletter Independent Adviser for Vanguard Investors. That was more than three times the amount the funds got in September 2013.

With about $3 trillion in assets, Vanguard is the world's second-largest money manager. BlackRock Inc. had $4.5 trillion as of Sept. 30.

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