Vanguard's market share keeps growing

The Vanguard Group now has one in every five dollars in the $16 trillion mutual fund industry, according to Morningstar. Vanguard, which has nearly $3 trillion in U.S. mutual fund assets, is riding the wave of passive investing, which shows no sign of cresting. Overall, passively managed U.S. stock funds saw an estimated net inflow of $9.6 billion in November, versus a net outflow of $67.5 billion from actively managed funds. Vanguard's net flow for the month was $9.8 billion, which includes outflows from its stable of actively managed funds. Of the 10 largest mutual funds, six — all index funds — were offered by Vanguard. John Hancock had three of the biggest gainers, with Pimco Income Fund (PONAX) taking 10th place with $661 million in new inflows for the month. Of the 10 largest fund companies by assets, only Vanguard and Dimensional Fund Advisors had net inflows (DFA saw an estimated $1.4 million in new money come in the door). Fidelity, for example, saw nearly $9 billion leave the complex, despite a $3 billion inflow to its index offerings. The American Funds, which have no index offerings, had an estimated outflow of $3.4 billion. Investors did just the opposite of what they should have done in November, selling funds that invest in the U.S. stock market and buying international funds. The U.S. stock market has surged since the election, while a strong dollar and weak foreign markets have hurt international funds. Investors sold a net $16.1 billion from U.S. stock funds in November, with $11.3 billion leaving large-company U.S. growth funds. Foreign large-company blend funds saw $4.5 billion in net new money. Bond funds also saw an exodus as rising interest rates started taking a toll on their share prices. Morningstar estimates that $6.8 billion left taxable bond funds and another $10.2 billion fled municipal bond funds. But not all bond categories were spurned. U.S. inflation-adjusted bond funds saw a net inflow of $1.1 billion, presumably because investors think a more rapidly growing economy will push up the cost of living. Ultrashort bond funds, which are less susceptible to rising interest rates than longer-term bond funds, saw $2.4 billion of net new money. Bank loan funds, which invest mainly in adjustable-rate loans, had a $2.5 billion inflow.