Vanguard Thrives in a Sour Climate

Low fees draw assets as other money managers see withdrawals
McNabb has preached Vanguard's low-cost gospel to financial advisers Photograph by Christopher Leaman for Bloomberg Businessweek

A dozen years of disappointing stock returns have soured investors on professional money managers, especially ones who charge high fees for their ability to pick winning stocks. For Vanguard Group, which sells mainly index funds at one-fifth the industry’s average fee, investor angst has been a windfall. Vanguard attracted $48 billion in deposits in the first quarter, the most in its 38-year history, and roughly one-third of all the money that went into mutual funds and exchange-traded funds (ETFs). “The world is coming around to our way of doing things,” says Chief Executive Officer F. William McNabb in his office on Vanguard’s suburban campus, which looks like a no-frills community college.

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