Vanguard’s net inflows fall by half to $151bn

New cash flows for Vanguard fell by half last year in a slowdown that leaves the world’s second-largest asset manager trailing farther behind its larger rival and closest competitor BlackRock.

Net investor inflows dropped to $151bn in 2022, down 49.6 per cent on the $299.4bn in new cash gathered over the previous year, according to data provided by the company.

More than half of Vanguard’s total assets are invested in tracker funds that closely follow broad financial benchmarks, such as the S&P 500 or FTSE 100, so it was hit hard by the simultaneous falls that battered equity and bond markets globally in 2022.

“The past year was challenging for all investors. Through it all, Vanguard investors once again proved their resolve by staying the course, trading minimally, rebalancing through the market’s sharp sell-off, and then benefiting from the subsequent rally,” said a Vanguard spokesperson.

Total assets managed by Vanguard declined by $1.2tn last year to $7.2tn at the end of December following the sell-off that swept across financial markets during 2022 when central banks responded to soaring inflation by increasing interest rates.

However, rises in rates also helped to draw investors back to money market funds where Vanguard pulled in $23.2bn in 2022, compared with net outflows from money funds of $32.8bn over the previous year.

Pennsylvania-based Vanguard has gained a reputation as one of the investment industry’s toughest price competitors by continuously reducing its fund fees since it was founded in 1975, a strategy that has helped it to recruit more than 30mn clients.

Chief executive Tim Buckley said last year that Vanguard would cut $1bn from its fund fees by 2025, extending the cut-throat price war that has helped to reshape the asset management industry over the past decade.

But last year’s asset drop raises questions about how much further Vanguard will be able to pursue fee cuts to attract new business when the investment industry is struggling to absorb increasing staffing, technology and regulatory costs.

Vanguard, a private concern that is owned by the investors in its funds, held the title of world’s fastest-growing asset manager for seven consecutive years up to 2018 but BlackRock has gathered more inflows in each of the past four years.

Amin Rajan, chief executive of asset management consultancy Create Research, said there were “faint signs” that investors’ love affair for passive tracker funds might have begun to weaken with more fluid market conditions expected to provide better opportunities for active managers.

“Vanguard is more exposed to this changing sentiment than BlackRock. But Vanguard remains a formidable competitor,” said Rajan.

Rapid growth in the adoption of exchange traded funds in the US and Europe has intensified the rivalry.

Vanguard’s ETF arm registered net inflows of $210.1bn last year, down 39 per cent on 2021 while BlackRock’s iShares ETF division saw inflows fall 28 per cent to $220bn.

Their roles as the world’s two biggest ETF providers have helped to provide better protection for Vanguard and BlackRock against the drop in investor confidence that has affected competitors across the investment industry.

Investors globally pulled $530bn from investment funds (excluding short-term money market funds) in 2022, the fund industry’s worst year for new business since 2008, according to Morningstar, the data provider.