Morningstar - Q2 2022 - 45

EXHIBIT 1
far behind. Including money markets, BlackRock's
2021 inflows totaled $363 billion versus
Vanguard's $329 billion. Fidelity finished third,
with $127 billion.
Yet beneath the surface of what has become
a two-way race are signs of Vanguard's discipline
and Bogle's influence. Although Bogle passed
on creating the first ETF in the 1990s because
he feared investors would use them to speculate-
as many have-he later conceded that,
" Yes, broad-based stock and bond ETFs, used
properly as long-term investments, are good
for investors. " 4
200
Vanguard's 56 U.S.-domiciled ETFs largely lend
themselves toward sound long-term investing.
Apart from some sector, size- and stylefocused,
and dividend ETFs, most track diversified
benchmarks. BlackRock's 378 iShares ETFs
domiciled in the U.S. include many diversified ones,
too, but also lots of niche regional and thematic
products, like iShares Robotics and Artificial
Intelligence Multisector ETF IRBO, which enable
betting on slivers of the market.
Vanguard might have also continued to beat
BlackRock's U.S. retail business on flows had it not
been for an investor-friendly but marketingunfriendly
decision. In August 2020, Vanguard
renamed its then-$125 billion prime money market
fund Vanguard Cash Reserves Federal Money
Market VMRXX to signal its narrowed government
securities mandate. Rather than risk breaking
the buck by chasing commercial paper's paltry
yield, Vanguard changed the fund, which
has since seen more than one fourth of its assets
withdrawn. Excluding those withdrawals and
money markets overall, Vanguard's flows
again outpaced BlackRock's open-end lineup and
iShares ETFs in 2020 and 2021.
Critics Are Right About Customer Service
Critics are on point about Vanguard's customer
service difficulties. Vanguard has sought
to nudge its 30 million investors toward digital
3,403
100
2,000
2012
2013
2014
2015
2016
2017
2018
2019
Data includes open-end funds, ETFs, and money markets and excludes funds of funds and institutional assets.
Source: Morningstar Direct. Data as of 12/31/2021.
2020
2021
4,000
Two-Way Race Vanguard and BlackRock have run away from the crowd based on
flows and assets.
Estimated
Net Flows
$400B
Total
Vanguard
BlackRock/IShares
Vanguard
BlackRock/IShares
Net Assets
$8,000B
7,759
300
6,000
engagement, but website glitches have
sometimes made that difficult. A late-2021 hack
of a third-party service provider impaired
delivery of statements, confirmations, and tax
forms for days. Client holdings and online
transactions weren't affected, according to a firm
spokesperson. But the problems may have
contributed to Vanguard's December inflows
being its worst since 2010.
300
Active
Passive
$400B
200
100
Estimated
Net Flows
Vanguard's nonadvisory clients who prefer or
need human interaction too often experience long
wait times, which has pushed some toward
Vanguard Personal Advisor Services for better
access. In fact, a Vanguard advisor recently told an
acquaintance considering the advisor service
that he was tired of apologizing to callers and
complaining to his manager about Vanguard's poor
phone service and tech stumbles.
-100
1994
1997
2000
2003
2006
It's been suggested that because of its lowmargin
products, Vanguard can't afford the extra
costs of higher-touch service for clients who
don't pay Personal Advisor Services' 0.3% annual
charge. But that's unlikely. Vanguard could
always forgo further fee cuts to raise money. It also
sold at reportedly favorable terms $3 billion
of private placement debt in 2020 to invest in its
business. Vanguard's renewed efforts to improve
client experiences since 2017 simply haven't
made enough progress.
Total
Active
Passive
Net Assets
$8,000B
5,977
6,000
Vanguard must overcome persistent struggles
to meet customers' needs amid business
growth. Indeed, former company leaders have
indicated these struggles trace deep within
Vanguard's history, while Bogle's employee
speeches contain many references to them over
the years.5
1,783
4 Bogle, J.C. 2019. Stay the Course: The Story of Vanguard and the Index Revolution. (Hoboken: John Wiley and Sons), P. 112.
5 Wigglesworth, R. 2021. Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever. (New York: Portfolio), P. 125. Bogle, J.C. 2002. Character Counts:
The Creation and Building of The Vanguard Group. (New York: McGraw Hill), PP. 69, 73, 103, 107, 108, 128, 147, 158, 221, 222.
2009
2012
2015
2018 2021
morningstar.com/products/magazine
45
-2,000
4,000
2,000

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Morningstar - Q2 2022

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