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Vanguard's Bogle Sees 'Lots of ETFs Going Out of Business'

Vanguard's Bogle Sees 'Lots of ETFs Going Out of Business'
(Dollar Photo Club)

By    |   Tuesday, 29 May 2018 05:14 PM

Investment guru Jack Bogle, the man credited with inventing index funds, predicts the once-flourishing growth in exchange-traded funds will stall and “a lot of ETFs will go out of business along the way.”

Bogle, the inventor of the index fund and founder of Vanguard Group, fears that ETFs are purely speculative, encouraging selling at the bottom and buying at the top.

The evolution of the index fund has created ETFs, which entice investors to trade, instead of hold for the long term, Barron’s explained. The turnover in ETFs alarms him: 785% in the 100 largest, versus 144% for the 100 largest stocks, Barron’s reported.

“The difference between traditional index funds [what he calls “TIFs”] and exchanged-traded index funds are like night and day,” he told Barron’s.

ETFs, he says, are the way passive indexing “morphs into active management” and its associated problems, including increased transaction costs and market timing.

"There are regulators all over the world that are looking at the growth of ETFs in particular and indexing in general, and they are not sure they like what is going on. ETFs are an oligopoly led by Blackrock, Vanguard, and State Street with very few others up in that rarified air," Bogle said.

"The Investment Company Act essentially says that no mutual fund can own more than 10% of the shares of any company. But when and if our index fund gets to 10%, all we have to do is start a second one and that would be in technical compliance. There should be limits," he said.

Turning to his own personal investment account, Bogle said he owns 40% equities and 60% bonds. 

Meanwhile, Bogle's disdain for ETFs doesn't reflect recent Wall Street trends.

Investors raced into U.S. stock exchange-traded funds during the latest week, restoring at least briefly a key pillar of support for markets, data from the Investment Company Institute showed, Reuters reported.

U.S.-based equity ETFs collected $11.2 billion during the week through May 16, according to the ICI trade group, the most since mid-March’s high-water mark for the year in terms of demand.

Along with share-buying by companies themselves, strong demand for ETFs has been a primary support for U.S. equities in their near-decade gallop higher, Goldman Sachs Group Inc (GS.N) research shows.

This year, however, that demand has waned. The average U.S. equity ETF inflow this year is just over $3 billion per week, down from $6.7 billion per week throughout 2017, based on the ICI data.

(Newsmax wire services contributed to this report).

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Investment guru Jack Bogle, the man credited with inventing index funds, predicts the once-flourishing growth in exchange-traded funds will stall and “a lot of ETFs will go out of business along the way.”
vanguard, jogn bogle, etf
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2018-14-29
Tuesday, 29 May 2018 05:14 PM
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