MutualFundWire.com: How Do You Compete In the Age of Vanguard?

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Tuesday, December 27, 2016

How Do You Compete In the Age of Vanguard?

As "the most dominant fund company in history" keeps raking in the inflows, one of the most prominent watchers of the mutual fund industry has some suggestions for the 1,000 or so other mutual fund shops trying to compete.

John Rekenthaler
Morningstar
VP, Research

John Rekenthaler of Morningstar highlights three suggestions from advisor Josh Brown, who blogs as "The Reformed Broker". Fundsters who want to survive, take heed.

Rekenthaler urges mutual fund firms to: 1) offer more exclusive products (i.e. funds with limited capacity that will soon be closed to new investments, etc.); 2) go high-conviction, high active-share; and 3) take a page out of DFA's [profile] playbook and educate their advisor allies and end investors.

In other words, at least for 1) and 2), instead of trying to beat Vanguard [profile] at its own game, play games that Vanguard refuses to play, as it continues, in Rekenthaler's words, "devouring, gobbling, ingesting, inhaling, swallowing, and absorbing" the rest of the mutual fund industry.

Yet Rekenthaler notes that, for many fund firms, change may not feel so urgent:

... [T]he reality is that investment management is an outstanding business. Even fourth-tier fund companies are profitable, after paying their employees distinctly above-average wages. Change comes slowly in such environments.