Vanguard’s assets under management have surged beyond the $7tn mark for the first time after the investment industry’s fiercest price competitor attracted net cash inflows of $186bn last year.
Pennsylvania-based Vanguard has grown into the world’s second largest asset manager after BlackRock by championing low-cost investment funds to recruit an army of more than 30m clients since it was founded by Jack Bogle in 1975.
Investors poured a record $210bn last year into Vanguard’s exchange traded fund arm, which secured more than a quarter of the ETF industry’s entire global cash inflows in 2020. It lost some assets after relinquishing a handful of institutional clients in China and Australia.
Chief executive Tim Buckley told the Financial Times that clients had “stayed the course” with Vanguard in 2020 when the coronavirus pandemic triggered a brutal correction across financial markets globally.
“Investors continued to give us their trust during the very difficult market conditions of last year. Vanguard clients’ wealth increased by $930bn over the course of 2020,” said Mr Buckley.
Vanguard and its nearest rival BlackRock dominate the global asset management industry as a result of the massive shift by investors into index-tracking ETFs over the past decade.
“Asset growth in passive index-tracking funds is turning into a two horse race with Vanguard and BlackRock leaving the rest a long way behind. The battle between the two titans is heating up,” said Amin Rajan, chief executive of the consultancy Create Research.
Vanguard, a private concern that is owned by its fund investors, held the title of world’s fastest growing asset manager for seven consecutive years up to 2018 in terms of net inflows before being overtaken by BlackRock in 2019. Overall, Vanguard’s assets rose from $6.2tn to $7.1tn over the past 12 months.
BlackRock, which oversees assets of $7.8tn, registered net inflows of $264bn in the first nine months of 2020. Analysts predict that BlackRock will have additional inflows in the final quarter of last year when the US stock market hit an all-time high.
Net global investor inflows for Vanguard dropped from $264bn in 2019 to $186bn last year, according to preliminary data provided exclusively to the Financial Times.
The decline was driven in part by net outflows of $14.2bn from Vanguard’s international operations after it pulled out of running more than a dozen low fee mandates on behalf of large institutional investors in China and Australia.
About $21.6bn in assets were returned to China Investment Corporation, the sovereign wealth fund, China’s State Administration of Foreign Exchange and the National Social Security Fund, the state-backed pension plan.
Vanguard aims replace the Chinese asset losses in time through an investment advisory partnership with Ant Group, a joint venture which has acquired 500,000 clients in less than a year.
Vanguard also withdrew from mandates with 12 institutional clients in Australia where it plans to build a pension business that will challenge the country’s established superannuation funds.
It also shut two US municipal money market funds with combined assets of $3bn, which have been affected by ultra-low interest rates.
Some observers have questioned why Vanguard chose to dump prestigious institutional clients.
Mr Buckley said these “tough financial decisions” would not have been possible for other investment managers but they would allow Vanguard to focus more clearly on the job of helping individual investors.
“We are determined to help investors keep more of their returns. We can really change outcomes for clients through providing high-quality low-cost financial advice,” he said.
Vanguard’s Personal Advisor Services, which provides a combination of digital tools and human advice for clients, increased assets by $51bn to $212bn last year.
However, complaints have mushroomed across investor bulletin boards about long waiting times to speak to Vanguard advisers and interruptions to services in periods of high market volatility.
Mr Buckley acknowledged that sudden “surges of interest” from investors had led to problems but he pointed out that Vanguard was investing “hundreds of millions of dollars” in new digital capabilities to improve service standards for clients.
“We can now collaborate through video technology, meeting clients in the comfort of their own home. It is a whole new territory that is opening up and we plan to roll these advice services out across the world,” he said.
Online trading apps, such as Robinhood, have attracted millions of new retail customers during the pandemic and drawn criticism for “gamifying” investing.
“We do worry that people are getting pulled in to day trading without fully understanding the risks. No investor should be playing with their retirement savings for entertainment,” said Mr Buckley.