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 3rd, 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," Mr. 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 Mr. McNabb said he received a ton of letters from investors.
Mr. 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," Mr. 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."
This type of behavior has Mr. McNabb confident about how his company will perform during the rest of the recession. "I am very fortunate to come to Vanguard now," he said. "A lot of hard work was done by my predecessors. They established a culture here where managers know that no one — all the way up to the board of directors — is going to pressure them to do anything investment-wise that they don't think is prudent."
In fact, those predecessors cast long shadows — John J. Brennan and John C. Bogle — and analysts say that Mr. McNabb's legacy will be forged by how he steers Vanguard past the current crisis.
"Vanguard needs to consider if it has the right investment products in place for when this downturn ends," said Geoffrey Bobroff, the president of Bobroff Consulting in East Greenwich, R.I. "If the company doesn't, then investors are going to take their money elsewhere. The real measure for Vanguard isn't how they perform now, but if they can maintain these assets when markets bounce back."
Unlike some of its competitors in the fund industry that had heavy outflows and have been forced to cut staff and expenses over the past couple months, Vanguard has had its second-best year, generating $75 billion of net inflows through November, according to Mr. Buckley. (Last year it had $110 billion of net inflows.)
