Vanguard founder Jack Bogle has some advice for active managers: “Do nothing, just stand there.”
Addressing the 2017 Morningstar Investment Conference in Chicago on Thursday, Bogle took the mutual fund industry to task for short-sightedness and rampant conflicts of interest, but he also said that most of the traditional large fund complexes will survive the continuous shift to passive index-following strategies.
“These large firms also have the resources to pursue other lines of business beyond investment management, although I don’t see how that strategy could create value for their mutual fund shareholders,” said Bogle.
Doing nothing, said Bogle, is more likely to benefit active managers than attempting to follow index funds towards lower fees, marketing more aggressively or launching their own index fund lineups.
Bogle was also pessimistic that active managers could find success through offering their strategies within ETFs and “dubious” of the long-term staying power of smart beta products – instead, major mutual fund conglomerates should keep their hands off the mutual fund business, says Bogle, and expand into other business lines to ensure their sustainability as going concerns.
“Maintain your fund business as the ‘cash cow’ that it is today, delivering high margins and generous profits, albeit likely at a declining rate,” said Bogle. “Don’t invest more capital.