John C. Bogle founded Vanguard in 1975. The company is named after a famous 18th century ship named the “Vanguard," meaning “in the forefront.” The firm maintains its global headquarters outside of Philadelphia in Valley Forge, Pennsylvania.

Vanguard’s Founder and History

Vanguard was the first mutual fund company to be owned by its member funds. Bogle’s desire was to ensure that the primary goal of Vanguard was always to build wealth for its clients, and only for its clients, not for a management firm. By redirecting net profits from economies of scale to fund shareholders in the form of lower costs, he believed he could deliver greater value to investors than other fund management companies. The arrangement was structured similar to a mutual insurance company or a credit union; operating expenses were kept low and sales commissions were removed. Bogle wrote his undergraduate dissertation at Princeton on index investing. He is said to have proved that at the time, three out of four actively managed large capitalization mutual funds returned no value to investors above the S&P 500 index after considering management fees and taxes. That principle would serve as the foundation of his career and his future company, Vanguard.

The First Index Mutual Fund

Soon after its founding, Vanguard opened the first index mutual fund, the Vanguard 500 Index Fund (VFINX), which invested accordingly to the S&P 500 Index. This fund pioneered the era of lower-cost index investing. At first, this simple investing philosophy was not well-received in the financial services industry and was often looked down upon by the more traditional mutual fund companies. However, the company’s low-cost philosophy gained traction with the public, and Vanguard’s assets under management (AUM) began a meteoric climb by the end of the 1980s until today, with its AUM exceeding $3 trillion. Today, Vanguard continues to be known for mutual funds and exchange-traded funds (ETFs) with some of the lowest expense ratios in the industry.

Client Base

Vanguard has a diverse client base. It sells directly to investors through its own website, and its products are also widely available on investor-directed trading platforms. Although Vanguard does not pay sales commissions to financial advisers, its funds are popular throughout the fee-based financial advisory networks, as well. Vanguard also provides services to institutional investors and retirement plans utilizing its basket of normal mutual funds, some of which can be purchased with lower expense ratios if account minimums are met for Vanguard’s Admiral Shares.

Mutual Fund Offerings

Vanguard currently has at least 125 funds available in the U.S., canvassing a wide spectrum of asset classes. Currently, Vanguard has funds available in the following asset classes:

- Money market funds

- Bond funds

- Balanced funds (mix of stocks and bonds)

- U.S. stock funds

- International stock funds

- Sector and specialty funds

Vanguard has a fully diversified lineup of mutual fund offerings. However, the company is perhaps best known for its large capitalization U.S. equity funds, the first of which was VFINX. The majority of Vanguard’s mutual fund offerings are index funds, meaning that the fund invests in stocks or bonds proportionally to a particular index. Since these funds are primarily traded using computer algorithms and require no traditional active management, fund expenses are incredibly low. For example, Vanguard’s 500 Index Admiral Shares fund (VFIAX) invests in proportion to the S&P 500 and has an expense ratio of 0.05%. Other index funds track indexes that are less commonly known. For example, the Vanguard Short Term Inflation-Protected Securities Index Fund (VTAPX) tracks an index that measures the performance of inflation-protected U.S. Treasury bonds for an expense ratio of only 0.10%.

Management Philosophy

Although index investing has become nearly synonymous with Vanguard, the company does have some mutual funds that are not index funds. For example, Vanguard’s Windsor Fund (VWNDX) is an actively managed fund, which seeks out large capitalization stocks in the U.S. that are temporarily out of favor at an expense ratio of 0.38%. Vanguard has several other such funds that, while they are not index funds, follow a defined philosophy and maintain an expense ratio below the industry average.

Vanguard’s Leadership

Bogle is now 85 years old and no longer in charge of the company as of December 2015. However, he is still known to work at Vanguard’s campus and advocate for low-cost index investing. F. William McNabb III is the current CEO and chairman of the board of directors at Vanguard. He has been with the company since 1986 and has been CEO since 2008. Mortimer J. (Tim) Buckley is the managing director and chief investment officer at Vanguard. He has been with the company since 1991 in various leadership roles. Since most of Vanguard’s funds are index funds, the portfolio manager of the various funds is a fairly inconsequential matter since the fund will adhere to an index regardless of who oversees it. The actively managed funds in Vanguard’s portfolio have portfolio managers that change from time to time.

Relationship with Wellington

Wellington Management Company LLP is a private investment management company, founded in 1929, and located in Boston. It was one of the charter members of Vanguard in 1974. Additionally, it manages approximately 20 of Vanguard’s actively managed mutual funds. The firm has approximately $898 billion in assets under management as of December 2015, about 30% attributable to Vanguard.

Outperforming Funds

Although many of Vanguard’s funds closely track their respective indexes, several of its actively managed funds have impressive track records. One example is Vanguard Dividend Growth (VDIGX), which seeks out U.S. large capitalization companies with strong dividends. The fund has outperformed the S&P 500 by 1.68% over the last 10 years and has outperformed its peers in its category by 2.54%, ranking it in the top 3% in its category over that period. Another example is the Vanguard Selected Value (VASVX) mutual fund, which seeks out mid-capitalization stocks with a value profile. This fund has outperformed the S&P 500 by 0.50% over the past 10 years and has outperformed its peers in its category by 1.25%, ranking it in the top 18% in its category over that period.

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