Most executives wouldn't consider themselves "fortunate" if they took over one of the largest fund companies weeks before an historic market collapse.
But then, most executives aren't taking over Vanguard Group at a time when investors are moving assets to low-cost index funds.

"It has been a tumultuous period, but Vanguard is coming out of this ahead," said F. William McNabb III, who became the company's president and chief executive in August. "It illustrates the power of diversification, and that is a very important point. I know it must sound like motherhood and apple pie, and it sounds pretty basic, but competitors lost sight of it. They lost sight of it in the late 1990s and they lost sight of it recently. Our success comes down to remaining disciplined."

Calling the current environment "Vanguard weather," McNabb said the firm has added customers in the past four months and is now the largest U.S. fund company. Vanguard stole that title from Fidelity Investments this year. Vanguard, based outside Philadelphia, in Malvern, Pa., had $1.072 trillion of assets under management as of Nov. 30 and Fidelity, of Boston, had $1.069 trillion, according to Lipper, a unit of Reuters.

In the first week of October, when the Dow Jones industrial average sank below 10,000, Vanguard's daily call volumes spiked to 80,000 from 35,000, online logins rose to 570,000 from 350,000, and McNabb said he received a ton of letters from investors. McNabb, who has worked at Vanguard for 22 years, said in an interview last week that he was surprised that the letters weren't hate mail — the company's investors wanted clarity about market conditions.

Tim Buckley, the managing director of Vanguard's retail investor group, said during the tumultuous period from September to October, Vanguard's sales leads increased, the number of new accounts rose, and buys outnumbered sells 2 to 1 in its brokerage business. He said 80% to 90% of Vanguard's retail customers maintained their investment strategy.

"We have seen a huge amount of buying activity," Buckley said. "I mean, it's not off the charts, but it was amazing to see activity as the markets struggled. It was reassuring that customers either didn't do anything or their investment behavior was positive."

For the complete story, visit www.americanbanker.com.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.