On Apr 29, the wealth manager Nick Maggiulli highlighted the legacy of Vanguard founder Jack Bogle in his newsletter. Maggiulli cited Bloomberg ETF analyst Eric Balchunas, who deconstructed the calculation of that trillion-dollar figure in a separate article this week.
In a recent article tribute celebrating the 50 years since Vanguard’s establishment, Maggiulli shared with his readers how Bogle’s philosophy saved American investors over $1 trillion. The savings came from lower fees and lower trading costs — and the wider industry pressure led rival firms to cut expenses as well.
According to Balchunas, the article reads, the savings are due to four primary drivers: lower fund expense ratios ($300B), lower trading costs owing to less portfolio turnover ($250B), and what he dubs the Vanguard Effect — the competitive pressures Vanguard put on competitors to reduce their fees, both for active ($200B) and passive ($250B) funds.
The Vanguard ultra-low-cost index funds changed the game — by not only charging less but also causing everybody else to charge less.
Crypto ETFs and the Bogle effect
Balchunas, who also tracks the development of crypto ETFs, believes that the Bogle effect is “among the top 3 most impactful things in the financial world in the past 50yrs”.
The introduction of low-fee spot Bitcoin ETFs in the United States has set off a fee war whereby companies like BlackRock and Fidelity cut expenses to compete, which Balchunas has been vocal about in the past.
On Jan 8, 2024, he wrote, “told y’all the fee war would break out bf they even launched. And this is w out Vanguard on the mix. Damn”, probably hinting at the Bogle effect phenomena.
This strategy reflects what Bogle accomplished for mutual funds and might save crypto investors billions over time.
TheStreet reached out to Eric Balchunas for further comment on the parallels between the Bitcoin ETF fee war and the Bogle Effect. As of publication, we are awaiting a response.