Vanguard slips to second place in the competition for fund flows | Jobs Vox


For the first time since 2007, it looks like there will be a new number one fund company when it comes to where investors are sending their money.

Heading into 2022, Vanguard Fund has been the top destination for investors’ money for 15 consecutive years. With one more month to go to close out the year, BlackRock iShares looks poised to wrest the crown from Vanguard.

Through the end of November, the iShares exchange-traded fund raised $152.4 billion, compared to Vanguard’s total revenue of $80.3 billion.

If it’s a little ironic for the firm that made its index fund famous, it’s the withdrawal from Vanguard’s actively managed funds that seems to have unseated the flow champion. At the same time, iShares, whose lineup is entirely ETFs, saw a significant amount of money move into bond ETFs.

A bar chart showing the net assets of Vanguard and iShares mutual funds and exchange-traded funds

Of course, Vanguard isn’t faking it by any means. Its index-tracking funds took in more money than iShares in 2022, and it compares favorably with other mutual fund families.

But the change in leadership reflects investor preferences and the strength of the iShares lineup. Vanguard has faced criticism for its strong commitment to client support and ESG investing, which is popular with smaller investors, said Alec Lucas, managing director of research at Morningstar.

Vanguard dominance

Vanguard is a dominant force in the fund industry, taking in the most money of any fund family for the past 15 years and seeing more inflows than any of its competitors in some years. Known for its low-cost index funds, investors have poured more than $2 trillion into Vanguard mutual funds since 2013.

Vanguard’s direct-to-investor, low-fee and index-focused investment approach is why it’s superior, says Lucas.

In general, investors prefer low-cost, passively managed funds. Although Vanguard is a major proponent of these investments, iShares’ broad lineup, particularly among fixed income investments, makes it more competitive with Vanguard.

Vanguard still reigns supreme in most areas. Vanguard Passive Trading It collected more than iShares in 2022, and Vanguard Total Bond Market ETF BND overtook iShares Core US Aggregate Bond ETF AGG for the largest bond ETF in August. Last year, more than 93 percent of Vanguard’s new funds went into index products, writes Morningstar senior managing research analyst Adam Saban.

“The leadership that Vanguard and iShares have shown is a testament to the dominance of exchange-traded funds,” says Lucas.

Vanguard active exits

Vanguard’s restricted flows came from actively managed funds. Primarily a manager of passive funds, Active Funds accounts for about 20% of Vanguard’s mutual fund and exchange-traded fund assets, while iShares offers exclusively managed funds. (BlackRock’s actively managed, open-end funds are managed separately.) Vanguard’s active funds totaled $91.4 billion as of Nov. 30.

Vanguard is not alone in seeing investors withdraw from their active funds. After a brief revival in 2021, 2022 has been one of the worst years in terms of inflows for active managers. Actively managed funds are on track for one of their worst ever runs, with $805 billion in outflows this year.

A bar chart showing active and passive flows into Vanguard mutual funds and exchange-traded funds.

A broad exit from tax-bond funds in 2022, along with a preference for privately managed funds, hurt Vanguard. Taxable bond funds were a steady destination for investor dollars. Over the past three years, the firm’s taxable bond funds have raised $452.3 billion.

But this year, as bond funds posted one of their worst years on record, investors pulled $29.9 billion from Vanguard’s actively managed tax-bond fund. The privately managed bond fund still saw $26.6 billion in revenue.

A bar chart showing Vanguard and iShares net asset flows across different fund categories

Outflows from equity and municipal bond funds were particularly large. The $66.9 billion Vanguard Medium Term Tax-Free Fund (VWITX) recorded $15 billion in outflows.

Vanguard Mutual and Exchange Funds Top Outgoing Bar Chart in 2022

While outflows from bond funds have struggled at Vanguard, bond ETFs have remained a strength for iShares. “IShares has taken the edge off in the fixed income space,” said Ryan Jackson, managing research analyst at Morningstar.

“IShares’ most distinct win came at the beginning of the year with its Treasury ETFs, which are popular safe-haven investments,” he says. The iShares 20+ Year Treasury Bond ETF ( TLT ), the iShares 1-3 Year Treasury Bond ETF ( SHY ), and the iShares US Treasury Bond ETF ( GOVT ) have taken in nearly $33 billion in revenue alone.

Bar chart of iShares ETF with the most income in 2022


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