Jack Bogle, founder of Vanguard Group and pioneer of index fund investing has sounded off alarm bells on index funds saying that the surging AUMs in these funds could lead to a harmful impact on the stock markets.
Jack Bogle, founder of Vanguard Group and pioneer of index fund investing has sounded off alarm bells on index funds saying that the surging AUMs in these funds could lead to a harmful impact on the stock markets. Bogle noted that the share of corporate ownership by index funds will continue to grow over the next decade, and it’s only a matter of time until index mutual funds could potentially own 30% or more of the U.S. stock market. In an op-ed column published in the Wall Street Journal, Jack Bogle said that the Big Three [Vanguard, State Street and BlackRock] might own — effective [voting] control. “I do not believe that such concentration would serve the national interest,” he cautioned.
“There no longer can be any doubt that the creation of the first index mutual fund was the most successful innovation—especially for investors—in modern financial history. The question we need to ask ourselves now is: What happens if it becomes too successful for its own good?,” wrote Vanguard’s founder in the publication.
“Public policy cannot ignore this growing dominance, and consider its impact on the financial markets, corporate governance, and regulation,” he wrote adding that these will be major issues in the coming era.
Jack Bogle is often referred to as the “King” of index funds, as he pioneered the concept of index investing. Notably, he founded the prominent trillion dollar AUM fund, Vanguard, way back in 1975. Jack Bogle had pioneered the concept of index fund investing on the premise that, in the long-term, it’s near impossible to beat the market, after considering costs associated with actively managed funds.