Vanguard, the world’s largest mutual fund company with more than $4 trillion in assets under management, had a smashing 2016. It was the top destination for investors, raking in net inflows of more than $277 billion that crushed its competition, according to a Morningstar report that tracks U.S. mutual fund and exchange-traded fund asset flows.
Investors also validated Vanguard’s core belief in index funds, injecting a record $505 billion into all passive funds — with half going to the company, the report said. Meanwhile, the typically costlier actively managed funds saw an exodus of $340 billion overall, widening the gap between active and passive funds.
Are actively managed funds — those led by managers who choose where to invest — on the way out? Vanguard CEO Bill McNabb does not think so. “The death of active may be overstated,” he said during a keynote speech at Wharton’s annual Rodney L. White Center for Financial Research Conference on Financial Decisions and Asset Markets. But he does see major shifts in the industry that call for a new way to do business. “The change in the economics of the investment management business is pretty profound.”