Mutual Funds: Portfolio Structures, Analysis, Management, and Stewardship

CHAPTER 18

A Design for the Mutual Funds of the Future

JOHN C. BOGLE Founder, The Vanguard Group, Inc., and President, The Bogle Financial Markets Research Center

THE VANGUARD VISION

I have a dream for the design of the mutual fund of the future. I did my best to provide this design when I created Vanguard in 1974, and nothing has happened in the nearly 35 years since then to shake my conviction that it is the right design. It seems timely to examine that design, the structure of Vanguard, the strategy that structure demanded, and the results it delivered. It is also high time to expand that narrow mandate and consider a comparable design—new to the other firms in this industry—for the mutual fund of the future.

Vanguard was created in 1974, the result of the “mutualization” of the Wellington Management Company mutual funds, then with just $1.4 billion of assets. Under this structure, the first step we took was to have our funds employ their own officers and staff; assume responsibility for operational, administrative, legal, and shareholder record-keeping services; and operate on an at-cost basis. Wellington continued its responsibility for all investment management and marketing services. This initial structure was designed to place Vanguard in a position to be the low-cost provider in an industry where, as we saw it then—and see it now—cost was the ultimate competitive weapon.

Following approval by the Securities and Exchange Commission (SEC) and our fund shareholders, we ...