Vanguard Expects Low Market Returns

Economists at the Vanguard Group think stocks will continue to grow, but at a lower rate of return in the medium term (of between 4% and 6%), with U.S. stocks trailing international equities. This according to a recent CNBC article. In a recent report to investors, Vanguard chief economist Joe Davis wrote, “Overall, the risk of correction for equities and other high-beta assets is projected to be considerably higher than for high-quality fixed-income portfolios.” While the firm sees no signs of market bubbles, Davis argues that rising market returns have in some cases exceeded companies’ improving fundamentals. In the report, […]

Vanguard’s McNabb Says Data Doesn’t Support ETF Bubble Fears

Although the shift to ETFs over the past ten years has been dramatic—since the start of 2008, the industry has attracted nearly $2.8 trillion in investment dollars (according to the Investment Company Institute)—Vanguard chief executive Bill McNabb told The Financial Times that he doesn’t see this as a “systemic” trajectory indicative of a market bubble. In the interview, McNabb argues that index tracking funds represent less than 15 percent of the equity market capitalization around the world, and less that 5 percent of daily trading volumes in global financial markets. [Vanguard, the article says, has “set industry records for new […]

Vanguard Has Seen More Inflows than All Competitors Combined

In the last three calendar years, investors have poured $823 billion into low-cost index and ETF funds managed by Vanguard, about 8.5 times as much as all of its competitors combined, according to a recent New York Times article. The article quotes Morningstar’s Alina Lamy, who says this type of flow is unprecedented. “Since the crisis,” she says, “investors have been saying, ‘I may not be able to control the market, but I can control how much I pay in mutual fund expenses.’” The phenomenon, coined the “Vanguard effect,” has “come as an existential shock to a mutual industry that […]

2017 Outlook Per Morningstar, Vanguard, and Others

While it may be reasonable to use long-term market data to help shape return projections, it should be a starting point which is then adjusted “up or down based on experts’ opinions about current valuations and the investor’s own time horizon,” writes Morningstar’s Christine Benz. Benz offers insights from different market experts regarding return assumptions: John Bogle, founder of Vanguard Group—in a September 2016 interview, Bogle said he expected “muted returns for both stocks and bonds” and projected equity returns of 4% to 5% over the next decade (less once inflation, taxes and investment fees are taken into account) and […]

Primecap: A Growth-Oriented, Independent, Long-Term-Focused Shop

Barron’s profiles Primecap Management, which it describes as “one of the best fund shops you’ve never heard of.” All of its six mutual funds are beating at least 86% of their peers over the last decade. The firm began in 1983 when Howard Schow founded it with Theo Kolokorones and Mitchell Milas. A year later, legendary advocate of passive investing and founder of Vanguard Jack Bogle put up $100,000 in seed money to launch the actively managed Vanguard Primecap  fund, which now manages $64 billion in Vanguard funds, making it Vanguard’s second largest relationship. Primecap is a very private operation […]