Courtesy Everett Collection
In the world of asset management, it increasingly seems like there’s Vanguard, and then there’s everyone else.
The investment management giant has taken in more than $177.3 billion in inflows across its products thus far in 2017, according to Morningstar data. That’s about as much as its 10 closest competitors—combined.
The losers amid Vanguard’s victory include such Wall Street titans as J.P. Morgan Chase & Co. /zigman2/quotes/205971034/composite JPM +0.89% , Wells Fargo & Co. /zigman2/quotes/203790192/composite WFC +0.80% , and Goldman Sachs Group Inc. /zigman2/quotes/209237603/composite GS +1.75% , all of which have seen notable outflows this year.
Vanguard’s dominance is a byproduct of investors moving en masse to passive products, which simply track an index like the S&P 500 /zigman2/quotes/210599714/realtime SPX +2.43% , as opposed to actively managed products, which aim to outperform such indexes through portfolio managers selecting the securities held. Data have repeatedly shown that passive funds perform better than active ones, particularly over the long term. Just as importantly, passive funds typically have much lower fees than their active counterparts. Vanguard funds, which are among the cheapest in the industry, can be had for as little as 4 basis points, or $4 for every $10,000 invested.
While Vanguard does offer actively managed funds—as well as “smart beta” funds, which use rules to deliver such strategies as “growth,” “value,” or “low volatility”—the overwhelming trend has been to passive. Last year, active funds as an overall category saw outflows of $285.2 billion while passive funds attracted inflows of $428.7 billion. This rotation has been occurring for at least 10 years.
According to Morningstar data, the flows into Vanguard products—which lifted its total assets to $3.826 trillion—were nearly double that of the second-place finisher, iShares, another giant in passive strategies, where inflows were about $94 billion.
Morningstar’s flow data, which is through the end of May, looks at both mutual funds and exchange-traded funds, an investment structure that has become increasingly popular. Not only are ETFs dominated by passive strategies, but they are both cheaper and more tax efficient than equivalent mutual funds.
According to FactSet, the 10 equity ETFs with the largest year-to-date inflows are all iShares or Vanguard products, with five funds from each sponsor seeing the greatest adoption. Of the top 20 stock funds, 17 come from either one or the other. (Of the remaining three, one comes from Charles Schwab, while another is sponsored by SPDR State Street Global Advisors and the third is from PowerShares.) A similar trend is seen in fixed-income ETFs, where all the top 12 funds are either iShares or Vanguard products.
The iShares suite is owned by BlackRock /zigman2/quotes/207946232/composite BLK +2.56% , which—separate from iShares—had inflows of $4.54 billion thus far this year.
Morningstar looked at products from 852 fund families, and of those, only five had inflows of more than $10 billion over the time period considered. (In addition to Vanguard and iShares, they were Dimensional Fund Advisors, Pimco, and Schwab ETFs.) More than half the fund families—439, amounting to 51.5%—had outflows.
Among the families with the biggest redemptions, Franklin Templeton Investments led the way with $11.24 billion in outflows. The firm couldn’t immediately be reached for comment.
Wells Fargo funds had outflows of $5.25 billion thus far this year, the fifth-highest of any firm. The redemptions lowered the assets held by Wells funds to $88.3 billion.
Other major names have also seen outflows in 2017. J.P. Morgan funds have seen a combined $3.79 billion in outflows this year, lowering its assets to $285.75 billion, while $332.9 million has been pulled from Goldman Sachs funds.
According to a report by the Financial Times , Goldman Sachs Asset Management was the worst-selling fund manager globally thus far in 2017. The asset manager had outflows of $26.7 billion, per the FT, almost twice the rate of Federated Investors, the second-worst selling house.
“By their nature, money market fund flows in any short period are a misleading measure of our business or longer term performance for clients,” a Goldman spokesperson told the FT.
While Goldman funds overall saw outflows, the firm did see increased adoption of its ETF lineup. One fund, the Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF /zigman2/quotes/201478684/composite GSLC +2.39% , had inflows of $733.4 million thus far this year, according to FactSet. Two other ETFs also had year-to-date inflows above $150 million.
SPDR State Street Global Advisors, the third major player in the passive arena, bucked the trend of Vanguard and iShares, showing outflows of about $504 million in 2017. This is almost entirely due to SPDR S&P 500 ETF Trust /zigman2/quotes/209901640/composite SPY +2.48% , which has had outflows of nearly $7.5 billion thus far this year. The SPY, the largest and most actively traded ETF on the market, is frequently used as a short-term holding or a vehicle for hedging by investors. Its flows fluctuate wildly on a day-to-day basis.