Massive Inflow for Vanguard: The case for passive investment

While passive investment funds made up only 2 percent of all mutual funds held by Americans 20 years ago, they account for about 35 percent today. There is also great evidence that further expansion is immanent with funds that track indexes in other markets seeing penetration that is generally below 10 percent. Vanguard is certainly unique in that the company’s clients own it. This is in stark contrast to similar companies that are owned by shareholders who are more concerned about their own profit than maximizing investors’ returns. With this, Vanguard is in a great position to continue to grow and offer lower priced options for consumers.The corporate heads at Vanguard have plans to revolutionize the way that people receive financial advice in the same way that they did with index funds. The company has already launched a limited program that provides advice on financial portfolios for less than a third of what most other institutions charge. It has already proven to be very popular with several thousand clients taking advantage of the service and investing millions of dollars. They plan to expand the program and make it available to consumers across the U.S. by mid 2015.

Vanguard’s operations outside of the U.S. expanded significantly in 2014. The company first listed exchange traded funds in Europe in 2012, and it grew faster than all but one company in the market in 2014. Vanguard saw over a 100% increase in international assets from 2013 to 2014, and it has focused mainly on Australia and the U.K.

Industry analysts have stated that the company will likely target defined contribution pensions in the U.K. This makes sense as it is already the leader in similar pension plans in the States. They also believe that Vanguard will invest in Australia’s pension market in addition to paying close attention to developments in China.

In addition, the company may begin to sell to investors in Europe directly in the same way that American consumers purchase financial products. As of 2014, individuals in Europe were only able to buy ETFs through third parties. This change would be costly and will likely only occur if Vanguard sees the potential to make a considerable profit in doing so.