PLANSPONSOR - February/March 2019 - 20

Upfront
The Inventor of Index Funds
WHILE there are many big names in the
financial services industry, few individuals
command the widespread admiration
enjoyed by John Clifton Bogle, known as
" Jack, " who founded the Vanguard Group.
Bogle died in January at age 89.
Vanguard's statement paints a compelling
portrait of the " inventor of the index
mutual fund. " " Mr. Bogle had legendary
status in the investment community,
largely because of two towering achievements:
He introduced the first index
mutual fund for investors and, in the face
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20 PLANSPONSOR.com February - March 2019
of skeptics, stood behind the concept until
it gained widespread acceptance. And he
drove down costs across the mutual fund
industry by ceaselessly campaigning in the
interests of investors, " Vanguard wrote.
" The company he founded to embody his
philosophy is now one of the largest investment
management firms in the world. "
Bogle coined the term " The Vanguard
Experiment " to describe his first attempt
to create mutual funds that would operate
" at cost and independently, " with their
own directors, officers and staff. He talked
about this as being a radical change from
the traditional mutual fund structure,
where an external management company
ran a fund's affairs on a for-profit basis.
" Our challenge at the time [the
mid-1970s] was to build, out of the ashes
of major corporate conflict, a new and
better way of running a mutual fund
complex, " Bogle once said. " The Vanguard
Experiment was designed to prove that
mutual funds could operate independently
and do so in a manner that would
directly benefit their shareholders. "
Vanguard's statement on Bogle's
death says his approach was " ridiculed by
others in the industry as unAmerican and
a sure path to mediocrity. " That first fund
collected only $11 million during its initial
underwriting. Now known as the Vanguard
500 Index Fund, this product has grown
to hold more than $441 billion in assets,
while its sister Vanguard Institutional
Index Fund has $221.5 billion in assets.
Today, index funds account for more than
70% of Vanguard's $4.9 trillion in assets
under management (AUM).
Bogle and Vanguard again broke from
tradition in 1977, when the firm ceased
to market its funds through brokers and
instead offered them directly to investors.
The company eliminated sales charges
and became a pure no-load mutual fund
complex. Bogle at the time said this move
would save shareholders hundreds of
millions of dollars in sales commissions.
Since then, passive mutual funds
and exchange-traded funds (ETFs) have
exploded in popularity and comprise
more than 40% of all U.S. stock fund
assets. The last two decades have seen
the fastest growth for index funds, which
held only 12% of U.S. stock fund assets
in 2000. As passive investing has grown,
new approaches have been introduced,
including " smart-beta " ETFs.
-John Manganaro

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PLANSPONSOR - February/March 2019

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