Money manager Vanguard Group has garnered net inflows of $15.1 billion into its exchange-traded funds (ETFs) so far in 2007 against inflows of $8.6 billion in 2006, helped by new launches, an executive said.
"We are close to a 100 percent growth over last year in net flows. The investment we made over the last several years in the business is beginning to pay off," Thomas Rampulla, director of sales at Vanguard's financial advisory business, told Reuters.
Rampulla said Vanguard, which already doubled net ETF flows in 2006 over the previous year, now has a share of between 18 percent and 20 percent of all US ETF inflows. It has more than $40 billion in ETF assets, or 6 percent to 7 percent of all US ETF assets, he said in an interview on Thursday. ETFs are index-based mutual funds that trade on exchanges like stocks. They have become hugely popular in recent years partly because of their low costs.
Vanguard, the second-biggest US mutual fund firm, trails Barclays Global Investors, the funds arm of British bank Barclays Plc, and State Street Global Advisors, the funds unit of State Street Corp, in the ETF market.
But it has ramped up its ETF business in the past six years by hiring more people to market its products to financial advisers and by launching new ETFs. About 90 percent of Vanguard's ETF sales now are through financial advisers.
"There's no question that it (ETFs) is the big growth area for them. Because it is a whole new channel of distribution for them," said Daniel Wiener, editor of the Independent Adviser for Vanguard Investors newsletter.
ETFs of Vanguard, already well known for its low-cost traditional mutual funds, had an average expense ratio of 0.18 percent as of end-2006 compared with the industry average of 0.46 percent, based on data from Lipper, the firm said.
A big factor in keeping costs of Vanguard's ETFs lower than those of competitors is that they are variations of its index funds, which also makes them more diversified and easier to launch, Vanguard says.
Vanguard has launched six ETFs in 2007, drawing strong interest, Rampulla said. An ETF based on the FTSE All-World (ex-US) index attracted about $1.1 billion, four bond ETFs got $1.3 billion and one based on an MSCI index garnered about $500 million, he said.
On the cards are ETF versions of a bond fund and several treasury securities funds, Vanguard said. But Rampulla said the firm was not trying to capitalise on the strong demand for ETFs through product proliferation. "There will be a few more products but you won't see dozens and dozens of products. We are getting pretty close to a very solid line-up," he said.
Kenneth Volpert, head of Vanguard's bond indexing group, said its Inflation Protected Securities Fund has net inflows topping $1 billion in 2007, making it the largest treasury inflation-protected securities (TIPS) fund in the United States. "Because performance is so much better, cash flows are really strong in the TIPS market," said Volpert, who oversees $85 billion. Vanguard manages $1.3 trillion in assets overall.
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