Jack Bogle: The fund manager who hates ETFs

Exchange-traded funds (ETFs) are the "greatest marketing innovation of the 21st century", says Jack Bogle, founder of investment firm Vanguard, interviewed in the FT. But whether they are the "greatest investment innovation" remains to be seen. "I do not believe [they are]; I think [they] will hurt returns for investors."

Bogle is well-known for his opposition to ETFs, which are one of the fastest-growing parts of the investment industry. That may sound surprising, given that ETFs are generally associated with low costs and indexing (tracking an index such as the FTSE 100 instead of trying to beat the market) exactly the principles on which Bogle created Vanguard 40 years ago.

Bogle's concerns meant that Vanguard was slow to embrace ETFs. It launched its first one in 2001 after Bogle stood down as chief executive, more than ten years after ETFs initially appeared in Canada. This gave rivals such as iShares (now owned by BlackRock) and State Street's SPDRs range a head start.

MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Yet Vanguard is now catching up: with around $430bn in US-listed ETFs, it's neck and neck with State Street in the American market (BlackRock remains some way ahead with over $750bn). That's still less than a sixth of Vanguard's $3trn in total assets, but the trend is clear. Whether Bogle approves of ETFs or not, Vanguard's clients increasingly do.

Cris Sholt Heaton is the contributing editor for MoneyWeek.

He is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is experienced in covering international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers.

He often writes about Asian equities, international income and global asset allocation.