Every year over the past two decades, in the good times and the bad, there’s been one sure-fire trend in Wall Street money management: Vanguard tightens its grip on the ETF market.
But now the John Bogle-founded giant is squeezing the $6.8 trillion industry harder than ever, by ramping up the fee war across a line-up of funds that is already raking in most of the billions flowing into the market.
Late last month, almost unnoticed, Vanguard said it had slashed charges on another 10 exchange-traded funds. That’s in a suite of 82 U.S.-listed ETFs, which have already absorbed about $58 billion this year -- more than all 2,817 competing funds combined.
Coming on top of the firm’s record-shattering $328 billion haul in 2021, those flows put Vanguard on course to surpass Larry Fink’s BlackRock Inc. as the largest ETF manager within the next two years, according to Bloomberg Intelligence -- upsetting a world order that has held since 2003.
In the process the Malvern, Pennsylvania-based firm is accelerating the takeover of stock index funds -- a development Bogle himself warned created hidden dangers -- while driving smaller issuers to offer ever-more niche and risky strategies to survive.
Vanguard “could put up a loss-leader because they have scale in other places,” said Jillian DelSignore, managing director and head of ETFs at FLX Distribution, a fintech platform for the asset-management industry. “If you are a one or two or even 10 ETF shop and you’re new, you can’t do that. You can’t have margins that look like that.”
Of the record $900 billion poured into the U.S. ETF industry in 2021, roughly one-in-every-three dollars went to Vanguard’s mostly passive, dirt-cheap products. So far this year it’s more than one in two. In January, as rate fears drove an equity selloff, the firm lured $22 billion -- dragging the entire ETF industry to net inflows of $17 billion.
Perhaps because it’s not yet the biggest issuer, or because it’s a champion of bringing low-cost investing to the masses, Vanguard’s rampant growth has received limited criticism. But regulators began fretting the size of firms like Vanguard and BlackRock -- which manage more than $17 trillion combined -- long before the latest growth spurt. Writing in 2018 shortly before his death, Bogle also warned that concentrated index-fund ownership of corporate America may not be in the national interest.