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Friday, November 25, 2016

The Mother and Father of Index Funds Push Back

News summary by MFWire's editors

Index funds are not worse than Marxism, despite what a certain analyst and countless active managers may think. So argue none other than the mother and father of index funds.

Burton Malkiel
Wealthfront
Chief Investment Officer
This week while fundsters and the rest of America were doing last-minute Thanksgiving shopping and pre-Black Friday holiday shopping, Jack Bogle and Burton Malkiel were each making the case in the press, once again, for the ever-growing passive mutual fund business.

Bogle, founder of Vanguard (which created the first index fund in 1976), gave a long interview to Michael Regan of Bloomberg. Interesting takeaways include: the fate of the fiduciary regulation (Bogle likes it but thinks it doesn't matter, long-run, whether or not it goes through); how Bogle celebrated Vanguard's big anniversary earlier this year (a lunch with the underwriters of the original fund); how Bogle's wife feels about him talking about Vanguard's success (hint: she's not fond of him telling people they're bringing in $1 billion per day); how Bogle got away with starting Vanguard's first index fund before his Wellington non-compete agreement expired; how much runway he thinks indexing has left (he says it's 10 to 15 percent of asset "and it could easily get to 50 percent"); Bogle's take on ESG and roboadvisors (he thinks "their time is here"); who will play Bogle in the Vanguard or index fund movie (Bogle likes Robert Redford); and Bogle's hopes for Trump (that the President-elect will be "Saul on the road to Damascus". Oh, and for you Bogle lovers or haters out there, he says he still responds to every letter and does email, too.

Meanwhile, Malkiel penned an op-ed in the Wall Street Journal, as a direct counter to the August Sanford C. Bernstein report ("The Silent Road to Serfdom: Why Passive Investment is Worse Than Marxism") and to a March New Yorker piece on indexing and valuation bubbles. Ultimately, Malkiel calls indexed investing "more like a transparent, well-functioning market economy than a 'silent road to serfdom.'" 

Edited by: Neil Anderson, Managing Editor


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