If the 48-year-old Buckley's willingness to take on the rest of the industry seems similar to Bogle's, it could be because his first job, in 1991, was as Bogle's assistant after four years as an undergraduate at Harvard University, where he rowed crew. (He reportedly doesn't go many mornings without putting in a few miles on his bike.) Buckley rejoined the firm a few years later after getting an MBA from Harvard. And he has risen relatively quickly. Ten years after landing his first job at the firm, he was promoted to chief information officer. Five years later, he was the head of Vanguard's retail business. And seven years after that, he was named CIO, even though he have never managed any of the firm's or its clients investments, but that seems to have worked out well for for both Buckley and Vanguard.
A decade ago, there was basically a three-way tie on top of the mutual fund investing heap. Fidelity, the leader, had about $200 billion more than Vanguard's $1.2 trillion, which was slightly ahead of American Funds, according to Bloomberg data. Nine years later, Vanguard is firmly in the lead and besting rivals on their own turf. Vanguard's active funds alone, a smaller portion of its overall funds, drew in $17.5 billion in assets in 2017 through November, according to Morningstar. Fidelity's active funds, on the other hand, lost $31.5 billion. Overall, Fidelity drew in $11.8 billion in new assets while Vanguard hauled in $325 billion.
The question is how much larger Buckley can increase that lead. The answer probably lies in the growing debate over the passive index funds that Vanguard specializes in. The percent of passively managed U.S. mutual fund assets is nearing 40 percent and 20 percent of the U.S. stock market overall. That's lower than other countries -- Japan's passively managed mutual fund share hit 70 percent last year -- but it's the highest it has been in the world's largest equity market. Backlash against passive ownership has led to a growing body of research that suggests index funds are hurting the U.S. economy. Studies suggest that index funds have led to higher ticket prices in the airline industry, where common ownership is high, and to rising executive salaries and less innovation more broadly. Vanguard's size will most likely only make the criticism, and the need for Buckley to counter it, grow.
The bigger threat to Vanguard's dominance is probably a micro one. Money has flowed in large part into passive investing, and by extension Vanguard, in the past few years because index funds have outperformed actively managed investment vehicles. And they have seemed safer. Actively managed mutual funds did worse than the indexes in the market downturns of 2000 and 2008. But that was most likely because those downturns were heavily concentrated in individual sectors -- technology and banks, respectively. If the next market downturn is more broad, an active fund with even a small amount of its portfolio in cash should do better than index funds, which have to stay fully invested. A prolonged market slump would certainly leave index funds even further behind.
Buckley appears to hedging the firm's bets. Factor ETFs, for one, should do better in a downturn. And he's indicated that he's planning to invest heavily in Vanguard's technology, which along with other efforts should improve the functionality of its website. Still, for the first time in its history, Vanguard's size, and its acumen at accumulating assets, could be its biggest liability. Buckley may be the right person for the job, but it won't be an easy one.
Stephen Gandel is a columnist for Bloomberg News.