The Vanguard Group, Inc.
The Vanguard Group, Inc.
Background:
The Vanguard Group, Inc. is one of the most successful mutual fund companies in the United States. Vanguard is a for profit company which was found by John C. Bogle in 1974.
John C. Bogle is credited with the creation of the first index fund available to individual investors, the popularization of index funds generally, and driving costs down across the mutual fund industry. Its Vanguard Index Trust 500 is the largest of the domestic funds managed by the firm and is among the largest of U.S. mutual funds. Vanguard's group of mutual funds maintains one of the lowest expense ratios within the financial services industry. As the second largest mutual fund company in the world in 1998, Vanguard received recognition for its innovations and performance. At the same time, challenges aroused due to evolution of the industry and development of new technologies.
Issues at hand:
What are the different types of fees charged by fund management companies?
The types of fees are as follow:
Administration fee, covering operation expenses
Advisory fee
Management fee
Performance related fee
Brokage, trading relatedly expense
Sales charge
Front end load
Back end load
Are fees linked to performance in any way? Explain. Yes, fees are linked to performance by mainly two ways. Firstly, after-fee performance is the most meaningful measure for clients. Assuming two funds have identical pre-fee performance, the one with lower fees will have higher after-fee return for investors. Secondly, there are actively managed funds consistently outrun the index in the long run. Performance incentive fee, which is usually based on how much the funds’ return exceed the benchmark, can attract the most talented fund managers and hence improve performance. However, performance related fee can be a double edge sword. It may cause agency issues at investor cost. Vanguard’s performance bonus has a different mechanics. A significant portion of the
Background:
The Vanguard Group, Inc. is one of the most successful mutual fund companies in the United States. Vanguard is a for profit company which was found by John C. Bogle in 1974.
John C. Bogle is credited with the creation of the first index fund available to individual investors, the popularization of index funds generally, and driving costs down across the mutual fund industry. Its Vanguard Index Trust 500 is the largest of the domestic funds managed by the firm and is among the largest of U.S. mutual funds. Vanguard's group of mutual funds maintains one of the lowest expense ratios within the financial services industry. As the second largest mutual fund company in the world in 1998, Vanguard received recognition for its innovations and performance. At the same time, challenges aroused due to evolution of the industry and development of new technologies.
Issues at hand:
What are the different types of fees charged by fund management companies?
The types of fees are as follow:
Administration fee, covering operation expenses
Advisory fee
Management fee
Performance related fee
Brokage, trading relatedly expense
Sales charge
Front end load
Back end load
Are fees linked to performance in any way? Explain. Yes, fees are linked to performance by mainly two ways. Firstly, after-fee performance is the most meaningful measure for clients. Assuming two funds have identical pre-fee performance, the one with lower fees will have higher after-fee return for investors. Secondly, there are actively managed funds consistently outrun the index in the long run. Performance incentive fee, which is usually based on how much the funds’ return exceed the benchmark, can attract the most talented fund managers and hence improve performance. However, performance related fee can be a double edge sword. It may cause agency issues at investor cost. Vanguard’s performance bonus has a different mechanics. A significant portion of the