Vanguard’s Bogle leaving?
Company founder to step down from board, but will head company think tank
NEW YORK (CNNfn) - Vanguard founder John Bogle remembers the exact moment when he first discovered mutual funds.|
Bogle, an economics student at Princeton, was leafing through a magazine at the library when he came across a story about the fund business in Boston. He was hooked.
"My intention was to write my dissertation on something nobody else had written about,” Bogle recalled. "That’s the kind of kid I was.”
Fifty years later, that feisty kid hasn’t changed a bit.
And even though Bogle, 70, is stepping down from the Vanguard board at the end of the year, he says he’s not really leaving. He’ll head a new Vanguard think tank, Bogle Financial Markets Research Center.
"I’m in no way, shape or form leaving Vanguard,” Bogle insists. "I’ll still be on the Vanguard payroll and doing my best to make this a better industry.”
Bogle, who is known as Jack, is one of the few icons of the fund industry. He founded Vanguard Group in 1975 and championed low-cost investing. For years, he has preached about how management fees and other expenses have eaten into long-term returns. Many fund experts believe he played a pivotal role in bringing indexing to the mainstream.
Today, Vanguard has $520.9 billion in assets under management.
He has hollered so loudly about costs that staffers at Vanguard jokingly gave him a minister’s clerical collar to complete the preacher image.
"They still call me St. Jack,” he joked.
Ask him about fund fees and he will rattle off some statistics to prove his point: Let’s say you have an equity fund that has earned an average annual return of 16.9 percent over 15 years. Take away all of the fees and taxes and you’re left with 11.2 percent. If you invested $10,000, it would grow to $49,000 in 15 years.
By contrast, your return would be 15.8 percent a year with an index fund because of the huge difference in fees and taxes. So that same $10,000 would be worth $90,000 in 15 years.
"In any part of the market, indexers will always win,” Bogle said. "In the long run, costs matter. Investors should be in the driver’s seat, not the rumble seat.”
Changing of the Vanguard
Bogle’s departure has come amid speculation of a rift between him and his protégé and hand-picked successor, John Brennan. Brennan took over as chairman and chief executive when Bogle stepped down in 1996 to have a heart transplant operation.
Many in the fund industry speculated that the two men disagreed on the direction of Vanguard. Bogle, many thought, opposed Vanguard’s movement into the online brokerage business.
So when the company last August said Bogle would retire from the board because of a rule requiring members to leave at age 70, many wondered if Bogle was getting pushed out. The company vehemently denied a falling-out.
"They have always been in synch on the major issues facing Vanguard and its shareholders,” said Vanguard spokesman John Demming.
Brennan was unavailable for comment, but was gracious in a footnote to his message to shareholders in the latest annual report.
"Vanguard investors have Jack to thank for creating a truly mutual mutual fund company that operates solely in the interest of its fund shareholders,” Brennan wrote. "And mutual fund investors have benefited from his energetic efforts to improve this industry.”
Bogle, when asked about his relationship with Brennan, would only say, "That’s an essay question.”
As far as the future goes, Bogle insists his new role will hardly be a change at all. He’ll keep his office at the company’s headquarters in Valley Forge, Pa.
He gives Vanguard an "A-plus” for its efforts to reduce fund costs, but rates the rest of an industry an "F.” While Vanguard has cut costs about 30 percent in the last 20 years or so, the industry’s costs have risen 70 percent.
A competitive squash player and still strong after his heart transplant, he jokes that he’ll need two more transplants to complete his mission of bringing lower costs to the fund industry.
As part of his new role, he’ll study patterns of industry data and continue lecturing.
"You’re going to see the same old sermon from the same old bully pulpit,” he said. "Most ministers will mention God on Sundays. I will mention the same things: Low cost investing; the industry getting its act together; anything I think that will serve the cause for creating more wealth for investors.”