Why Vanguard Founder Bogle Doesn’t Like ETFs
Vanguard Group founder John Bogle has been a vocal critic of exchange traded funds in recent years. He fears individual investors could be tempted to trade ETFs too much and shoot themselves in the foot.
“There’s no question that ETFs are the greatest trading innovation of the 21st century,” Bogle said this week at the Bloomberg Portfolio Manager Mash-Up, Investment News reports. “But the question is, ‘Are they the greatest investment innovation?’ and the answer is ‘no.’”
He also thinks that with over 1,000 ETFs listed in the U.S., it’s difficult for investors to choose the correct fund.
The Vanguard founder said he has a bullish outlook on stocks and that the case for equities to beat bonds over the next decade is “pretty simple” but “not without a few bumps along the way,” according to the report.
Vanguard is the third-largest ETF manager with $187.3 billion in the category as of Jan. 31, according to ETF Industry Association data. Bogle is known for popularizing index funds in the retail market.
“His principles in terms of standing for investors have been formulated in a fashion of elegance and persuasiveness that few Americans have ever before displayed,” Roger G. Ibbotson, chairman and chief investment officer of Milford, Conn.-based Zebra Capital, said. [Vanguard's Sauter Says More ETF Education Needed]
Without the success of Vanguard’s index funds, many say that the ETF industry would not be where it is today, report Alex Ulam and Olly Ludwig for Index Universe.
Bogle is known for his preoccupation with lowering the costs of investing and management of mutual funds, which started back when he was a student at Princeton University. His work eventually led to the creation of Vanguard, where fund shareholders are technically the owners of the company. [Education is Key for ETF Providers]
Despite the fact that 99% of ETFs are index products, Bogle has a distaste for them. [How to Use ETFs in a Trend Following Strategy]
He feels that the ability to trade ETFs during the day is their biggest flaw, which isn’t surprising given Bogle’s buy-and-hold philosophy.
Tisha Guerrero contributed to this article.
