Bogel Said There’s “Trouble in Paradise”

Posted by Sun on December 7, 2006
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John Bogel, founder of Vanguard and pioneer of index mutual funds, is aiming his firepower at ETFs this time, especially the index and sector ETFs. Of the total asset in all index mutual funds is about $900 billion, exchange-traded funds (ETFs) now take a 38% share.

In an article appeared on Bloomberg.com yesterday, Mr. Bogel, the mutual fund industry's most furious critic, complained that

ETFs, which unlike standard mutual funds trade continuously on stock exchanges, have been marketed as vehicles for trading and short-term speculation rather than long-term investing.

and

the newest ETFs have focused more and more on narrow segments of the markets rather than the stock and bond markets as a whole.

while acknowledging

the indexing movement, whose "triumph" he frequently proclaims, isn't looking quite so triumphant these past few years.

as index mutual funds have taken less than a 7 percent share of assets in stock and bond mutual funds, according to Mr. Bogle's own estimate. Despite all the benefits of indexing (passive, low cost, etc), investors still "favor complexity over simplicity and action over inaction, continuing to believe against all odds that they can beat the market."

After all,

The choice of active or passive funds, conventional or exchange-traded, is wide open for each investor, big and small.

You choose whatever serve you best.

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