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Vanguard Attracts Record Flows as More Advisors, Investors Move to Indexing

(Bloomberg) -- Vanguard, the biggest U.S. mutual fund provider, attracted a record $236 billion in net deposits in 2015 as investors flocked to passively managed products.

The flood of money into the firm’s U.S. mutual funds and exchange-traded funds broke the previous record of $214.5 billion set in 2014, spokesman John Woerth wrote in an e-mail Tuesday. Vanguard, based in Valley Forge, Pennsylvania, manages about $3.3 trillion.

The firm is benefiting from a growing preference for vehicles that track indexes as investors lose faith in the ability of active managers to beat the market. On Monday, BlackRock Inc., the world’s largest money manager, said its ETFs, which mainly track indexes, pulled in a record $130 billion in investor cash last year.

“It is amazing how ingrained this trend has become,” said Lawrence Glazer, managing partner at Mayflower Advisors in Boston, where he helps oversee $2 billion. “People think indexing solves their problems, even though there is no evidence it does.”

Vanguard was founded in 1975 by John Bogle on the theory that investors would be better off in low-cost index funds. The firm has steadily taken market share from rivals since the financial crisis of 2008, collecting about $1 trillion in deposits in that time period, according to Chicago-based Morningstar. About 69 percent of Vanguard’s assets are in indexed products, Woerth said.


In the first 11 months of 2015, passively managed stock mutual funds and ETFs gathered about $257 billion, compared with redemptions of $108 billion for actively run funds, Morningstar data show. On the bond side, funds that track indexes won $93.8 billion, compared with outflows of $25.7 billion for active funds.

The shift has produced losers as well as winners. Franklin Resources Inc. said in October that clients pulled a net $28.6 billion during the prior quarter, the worst such outflow ever for the firm. The San Mateo, California-based company suffered as the slump in emerging markets and energy dragged down the performance of some of its biggest mutual funds.

PIMCO., best known for its bond funds, also experienced redemptions after star manager Bill Gross left the firm in September 2014. Assets at Pimco, based in Newport Beach, California, fell to $1.47 trillion as of Sept. 30 from $1.97 trillion in June 2014.

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