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Vanguard – Our New Overlord

This chart supported by Vanguard’s own data is indicative of the explosion in popularity of passive investment strategies.  Short-sighted investors focused myopically on fees and benchmarking (which will end badly for them should a downturn send them scurrying for the door at the same time) have made Vanguard a dominant force in corporate governance.

How so?  In 2008 Vanguard through its passive mutual and exchange-traded funds owned 5% or more of shares in 12 of the companies comprising the S&P 500.  Today that number stands at 485.  Wow!

Vanguard as the dominant Rule 13d filer is now in a position to exert significant influence over corporate Boards putting them on par with so-called activist investors and corporate raiders.  The blind devotion of investors to the mindless index approach has resulted in an unintentional granting of extraordinary influence to the mutual fund giant.

All hail our new corporate master.

One Comment

  1. Rich Gula July 20, 2017 at 9:10 am - Reply

    You guys are so spot on, as the British Open fans might say! I managed a fund for Vanguard from 1986 to 1990 called Trustees Commingled International Fund, a Batteryarch Financial Management institutional focused fund that was run in parallel to #3 billion in Global/International assets that I oversaw. I was in close quarters on many occasions with Jack Bogle and Burton Malkiel, a prominent Board member. Bogle has been on the low fee is better no matter what path for three decades at least!
    He used to squeeze managers on fees, provide no marketing support and Dean LeBaron frowned on my dong any marketing at BMs expense.The fund peaked around $1 billion and was highly rated, risk adjusted, versus the Fidelity Overseas Fund of George Noble by 1990.

    Dollar Cost Averaging into a 50% downturn didn’t work very well in 2009, But ETFs replaced the standard Vanguard Fund offerings during the QE cycle. A quick review of ETF prices on August 25, 2015 will remind us all what the inherent risks are on a “bad market day”, never mind a liquidation phase if the FANG stocks ever return to earth! Good luck to you managing client expectations over the next several years of this cycle! Contra Mundum!

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