Vanguard Group Inc. Chief Executive Officer Bill McNabb reportedly doesn’t consider the explosive growth of exchange-traded funds (ETF) as a systemic threat or fuel for a stock-market bubble.
McNabb told the Financial Times that index-tracking funds, which includes the $4 trillion invested in ETFs, represent much less than 15 percent of the equity market capitalization around the world. He said index-tracking funds accounted for less than 5 percent of daily trading volumes of global financial markets.
“I don’t see the bubble,” McNabb told the FT. “The data belie the fears,” he said.
“I don’t think what is happening in ETFs is systemic,” said McNabb. “The concerns are more specific and idiosyncratic.”
Meanwhile, U.S. fund investors regained their risk appetite during the latest week, draining money market funds and pouring their cash into stocks after six straight weeks of withdrawals, Reuters reported.
Stock exchange-traded funds in the United States attracted $9.2 billion during the week ended Aug. 30, the most since June, according to Lipper data on Thursday.
That more than offset the $3.1 billion that bled from equity mutual funds in the same period, the research service said. Mutual funds are heavily favored by retail investors, while ETFs draw a diverse set of clients, including fast-trading hedge funds.
Tom Roseen, head of research services for Thomson Reuters’ Lipper unit, said there is plenty to worry about with ongoing conflict between North Korea and the United States as well as “lofty” U.S. stock prices. Yet the global economy looks good.
“People were a little bit more aggressive,” Roseen said of ETF investors. “They were just focused on the good news.”
Funds focused on domestic shares pulled in $3.9 billion, the most since June. Internationally focused equity funds pulled in $2.2 billion, the most since July, Lipper said.
Money market funds, which have pulled in tens of billions this summer as calm markets turned turbulent, posted $19.9 billion in withdrawals during the latest week, the data showed.
But Roseen said uncertainty is keeping demand up for some safe-haven investments. Gold is trading at $1,321 an ounce, up nearly 9 percent from early July.
Precious metals commodities funds, which invest directly in gold and other similar assets, pulled in $766 million in their largest week of inflows since June. The VanEck Vectors Gold Miners ETF pulled in $213 million, the most since March. That fund buys shares in companies that produce bullion.
For its part, Vanguard recently sent a message for competitors trying to undercut its prices: Game on.
In recent years, rival asset managers such as Fidelity Investments and BlackRock Inc. have cut their fund fees to match or beat Vanguard, the low-cost investing pioneer with $4.4 trillion in assets. Tim Buckley, Vanguard’s new president and incoming chief executive officer, said the company will keep lowering fund expenses as it grows, Bloomberg reported.
"As we continue to get scale, as we continue to grow and we get more efficient, we pass a large part of that back to our clients in the form of lower expenses. That’s not going to stop,” Buckley said on a recent company webcast. "If other people want to offer index funds, great. But you better be ready to keep lowering price, and we’re going to do it across every product."
Fee wars have broken out across the U.S. asset management industry. This week Fidelity announced fee cuts on 14 passive products and said some of its funds now have net expenses below comparable ones at Vanguard. BlackRock, the world’s largest money manager, last year reduced expense fees on 15 exchange-traded funds and Charles Schwab Corp. has also attracted money to its ETFs by trying to undercut Vanguard on similar products.
Last year alone 226 Vanguard funds and ETFs reported expense ratio declines, saving customers an estimated $337 million cumulatively, the company said.
(Newsmax wires services contributed to this report).
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