Morningstar has a short blurb on the 2024 outflows for 4 popular Vanguard funds - VWELX, VWINX, VDIGX, VPMAX. Reasons vary - bonds have been a drag for allocation funds & VPMAX is a high conviction growth fund that can misfire (so, it needs patience).
I was curious if this was an issue for 2024 only or had a longer-term pattern. MFOP
FLOWS came in handy to determine that there have been significant outflows for 5 years; in the prior times, there were mostly inflows.
https://www.morningstar.com/funds/4-vanguard-funds-pummeled-by-outflows-2MFOP FLOWS
Comments
Russel Kinnel, author of the article, speculates: He also notes VDIGX's lower exposure to Mag 7 tech funds.
I would add, VWELX and VWINX are among Vanguard's oldest funds, and RMDs could have something to do with outflows
But I think that there are other issues too.
Looking at other allocation funds with MFOP, ABALX / BALFX is doing OK in AUM, but VBINX, FBALX, FPURX are showing similar outflow patterns. An explanation may be that ABALX / BALFX has both advisory and DIY channels, and handholding or marketing by advisory channels may be at work. Other funds are mostly DIY and those investors can be impatient, and sometimes act against their own best interests, as Morningstar Mind-the-Gap studies show.
BTW, I am a holder of VWELX and VPMAX (along with other PRIMECAP-managed VG funds). I got rid of VWINX years ago.
One practical implication of heavy outflows is that yearend CG distributions may be high - but mine are in the IRAs. So, the OP wasn't intended to motivate holders to just sell, but to evaluate.
some arrogance involved.
primecap and wellington had many years to ask vanguard to adopt an etf structure for tax\trading benefits.
the fee declines seem too little, too late for typical active retail buyers.
Nor is Vanguard likely to ever clone an OEF into an ETF. That could immediately trigger an outflow from the OEF into the cheaper ETF, at least in tax-sheltered accounts. Vanguard was burned by doing something similar not too long ago - opening a cheaper clone of a TDF to lots of investors by lowering the min for the clone. The resulting shifting of assets by investors created a hefty cap gains tax liability for those investors remaining in the more expensive fund.
The third alternative would be to convert the OEFs into ETFs. If that were such an obvious move, then one would expect most fund companies to have already done this. While some have, the number seems to be more like a trickle than a flood.
IMHO RK is understating VDIGX's performance issues. I agree that when one invests in a particular style of fund and that style by design underperforms, that's not cause for concern.
However ... a quick M* screen of large cap blend funds with "Dividend" in their name (e.g. Rising Dividends, Dividend Growth, etc.) turns up 60 share classes. VDIGX is 60th of 60 for 3 year returns. 97th percentile in 2023, 98th percentile in 2024, and 89th percentile YTD.
OTOH, with Primecap, ISTM that its moderate underperformance (55th percentile over 3 years, 63rd percentile over 5 years) may indeed be attributed to its long term style - investing more in large caps and less in mega caps, and investing 10-20% internationally. If one is looking for a pure US large/mega fund, this isn't it and never has been.
Finally, there's a difference between moving away from Vanguard's platform and Vanguard's funds. It may be possible to negotiate a waiver of transaction fees for Vanguard funds on another platform. I was able to do that with Schwab when I brought my (somewhat sizeable) Vanguard holdings there. Though it is very difficult to buy additional Admiral shares of actively managed Vanguard funds on non-Vanguard platforms.
I also think there is something to be said about the "great wealth transfer" beginning. these are long time popular products amongst the greatest gen/boomers and there is a huge attitude shift in active management among genx/mill/z.
All cults come to an end.
None of this is meant to dispute all the other reasons listed by others above. I did briefly entertain thoughts of investing in VWINX at Fidelity only to learn it wasn’t available. Not a big deal. For any given fund I own, a half-dozen or more others were considered and might have also served the role intended.
Interesting line from The Gambler someone posted to Bill Fleckenstein’s board earlier this week …
"And somewhere in the evening the gambler he broke even, and in his final words I found an ace that I could keep..."
It's not uncommon for their funds to have sizable capital gains distributions.
Redemptions may have exacerbated the problem but I haven't looked into this.
am not sure i would let vanguard outside active managers off the hook for sticking to the standard mutual fund structure.
vanguard did something no one else had before with a new etf sharing a pool with an existing mutual fund. so outside active managers, with a front-row seat, should have learned somebody has to be first to try things.
since then, alpha architect has out-innovated everyone else, and has become a preferred outsourced manager for firms too inefficient to do etfs themselves (but i dont see vanguard going this route as it may displace thousands of employees..which is where their profits go).
finally, its laughable that mid-mega cap u.s. managers are 'giving away their secrets' with etfs. no active manager can move the market a trickle relative to the passive flows. nonetheless, for those with large egos, there does seem to be an option with less than daily disclosure of holdings.
whatever the reason, even being selected as an active manager by vanguard (aspirational as hell) has not protected them from sticking with the mutual fund structure.
No matter. If the Primecap principals felt it was in their interest to manage ETFs, they could have done so on their own. Just as they started Primecap Odyssey on their own. AUM doesn't appear to be a major concern of theirs. POGRX was the largest of those funds as of Oct 31, 2018 ($13B). It now has $5.4B AUM.
Regardless of its reasons, it has always been, and remains, Vanguard's policy to disclose only what is required by law and no more. Even with index funds (addressing your ego remark), and even with their ETF share classes.
See, e.g. Vanguard ETFs Eschew Daily Disclosure ETF Trends, 2014.
Current policy: Vanguard Whitehall Funds SAI Feb 27, 2024.
I have been slowly selling shares Spec. ID that have no or small capital gains. With the March, June, and December distributions, I have been purchasing VIG. If I held VDIGX in a non-taxable account, I would have sold all of it and purchased VIG.
of course there are other outside managers across all cap sizes, including other largecaps.
seems a bit presumptive to say primecap and wellington dont care bout their fund AUM plunges. where do they say this? its how they get paid.
regardless, the status quo of their mutual fund structure hasn't seem to have done me nor them much good.
i would be willing to tolerate the underperformance, and even the case that vanguard themselves is against a structure with less tax drag, given explicit reasons.
at least vanguard lets them tap into their internal pool of equity trades to minimize costs and spreads.
Seems a bit presumptive to infer that they didn't ask vanguard to adopt an ETF structure merely from the fact that Vanguard didn't do so.
Regardless, if Primecap had wanted to run some funds with an ETF structure it had its own company to do this.
I wrote that AUM didn't seem to be a major concern of Primecap. Perhaps I should have written that growing AUM doesn't seem to be a major objective. Primecap has always been concerned about the size of its AUM being too large. That's why both Vanguard and Primecap Odyssey funds have had multiyear (even multidecade) closures. Even though that impeded "how they get paid". Responsible managers do things like that.
ETFs can't be closed. Why would Primecap open wide the inflow spigot with ETFs while simultaneously keeping their OEF funds closed?
primecap and wellington dont care bout their fund AUM plunges
What AUM plunge? Despite closures, despite outflows, Vanguard Primecap's AUM stands at or near its all time peak:
Current: $75.9B (per M*)
Sept 2024: $78B
Sept 2023: $65B
Sept 2022: $56B
Sept 2021: $74B
Sept 2020: $64B
Sept 2019: $63B
Sept 2018: $69B
Sept 2017: $58B
Sept 2016: $47B
Sept 2015: $42B
Prospectus Jan 31, 2025 and Prospectus Jan 31, 2020
What is the law or rule that says an ETF is not allowed to close inflows?
BTW, in all cases of closure of creation of new shares of an ETP, I have only seen market price move to a premium (demand exceeding supply). I do not think an ETF is allowed to place redemption restrictions (partial restriction like in an Interval fund or a complete redemption restriction as in the case of a CEF), except in extraordinary circumstances and perhaps by a court order. In that case, I can see a discount.
Premium/discount (though muted) can also be seen in daily market trading in ETFs as a result of demand-supply dynamics, though that is not the sole cause of all premiums and discounts.
I am not suggesting all OEFs convert to ETFs.
But there have been some country ETFs that had these mechanisms disrupted due to the imposition of sudden currency controls. I think that both creation and redemptions were frozen in some cases.
One really strange example was GLD a few years ago when gold was hot and GLD ran out of shares (!; so no creation) because someone at the sponsor had forgotten to get timely SEC approval for issuing additional shares - a routine procedure but it still takes a few days.
If the creation/redemption mechanism is active and working, high demand will tend to drive premium up, but APs would control that by creation of more shares and that will increase the etf AUM until the demand is satisfied; reverse for sharp selloffs.
support E.T.F. creation/redemption mechanisms to maintain NAV/Price stability.
On August 24, 2015, exchange traded products (ETPs) experienced a real life stress test.
APs failed to support ETPs which caused a large divergence between net asset values and market prices.
There were 1,046 circuit breaker trading halts affecting 317 different ETPs.
"In this case (as it was in the 2010 Flash Crash), when Authorized Participants/market makers
cease to support ETPs they can swiftly and substantially decline in price."
"When the market became stressed, the Authorized Participants/market makers
again walked away from the buy-side of the market and many ETPs collapsed.
Several important ETPs, including those based on the S&P 500 companies,
became unhinged from their index and underlying asset values and triggered circuit breakers."
"There is no rationalization for these swings in valuation in an orderly supply and demand marketplace.
This trading was driven by high frequency and algorithmic computer trading programs.
It is obvious there is enough evidence to suggest that computer-driven trading
can in fact change portfolio values of the U.S. by trillions of dollars in very short periods of time."
https://www.sec.gov/comments/s7-11-15/s71115-38.pdf
2010 Flash Crash was a black swan event that was thoroughly investigated and some market reforms came out of those. Moreover, many trades at stub-prices were cancelled. Beware that trade cancellations weren't done for subsequent smaller mini flash-crashes and the etf investors who relied on stop-loss orders had genuine losses from those.
As the link by @Observant1 explains, in those very fast moving selloff, the APs and market-makers withdrew because those processes do take some time and by that time the market just produced more losses. The APs and market-makers now are under no obligation to be in the market like the old NYSE dedicated "specialists" did. So, the bids soon fell to default stub-bids that you sometimes see when the markets are not open. These default bid/ask stub-prices are just to feed our IT monsters and aren't supposed to be hit when the markets are open, but in 2010, they did. Regulators thought, and still think, that having multiple APs/market-makers makes this less likely.
Market reforms did address one problem. In 2010, there wasn't any intermarket coordination. So, when a security was halted on its primary exchange (under the SEC jurisdiction), it continued to trade in the derivative markets (under the CFTC jurisdiction) - options and futures. So, people sold in whatever markets kept trading. Now the rule is that if a security is halted in its primary exchange during the market hours, it's also halted automatically (i.e. by default) in the secondary exchanges AND the derivatives markets (options, futures) - UNLESS the regulators allow it. That's a good rule that should prevent accidents in future. But regulators do allow exceptions - derivatives have kept trading when, for example, the HK or the Russian markets were shut for days and the derivative markets provided useful price-discovery functions during those episodes. This also happens daily for off-hour trading.
My take from all this is that the etf investors should avoid market-orders during the first or the last half-hours. Strange things can happen from overnight accumulation of overseas orders at the open, or from market-on-close (MOC) orders that index funds use to minimize index tracking errors. It's common sense that when you see (or expect) a herd of elephants pass through, just step out of the way.
In our taxable account, we still hold their index funds. As we transitioned to ETFs and there are many solid choices, our index funds will be replaced gradually.
At Fidelity's transaction-fee platform, Vanguard and Dodge & Cox funds will cost $100 to buy, whereas the typical fee is $49.95. Not sure with Schwab's purchase policy.
Both Fido and Schwab charge mutual fund firms platform fees (25-50 bps), whether NTF or TF.
Standard TF fees apply to mutual funds that pay. But higher TF fees apply to those mutual funds that don't pay.
Then, there are some mutual funds that aren't even supported at these platforms.
So, Fido and Schwab aren't providing their mutual fund platforms as public service. This is one lucrative area that remains for them that is untouched by the drive to zero commissions. Options are another area.