On our most recent radio broadcast, Jim Rowley, Sr. Investment Analyst at Vanguard, joined us to discuss Vanguard's approach to Exchange Traded Funds and some of the key factors driving the continued growth of the industry. Vanguard is currently the third largest ETF provider behind only iShares and State Street and through the end of May, Vanguard has seen the largest inflows of ETF investor dollars this year. Vanguard founder Jack Bogle is well known for his belief that low cost, index-based investing is the best way to achieve long-term investment success. Vanguard built themselves into the country's largest fund company based largely on this philosophy. On the show, we discussed this philosophy and delved into Vanguard's recently released research paper titled "Cost matter: Are fund investors voting with their feet?". Vanguard found that "in response to investor interest, assets held in U.S. equity index funds and ETFs almost doubled over the decade, from 18% of all assets under management to 34%." Vanguard also examined where investors were placing their money based on how much the mutual fund or ETF costs and found that "the lowest expense ratio quartile attracted $292 billion of the cumulative net cash flow into all U.S. equity funds for the ten years ended December 31, 2012. Funds with higher expense ratios (quartiles 2, 3, 4) suffered net cash outflows of about $368 billion."
We also touched on a recent Wall Street Journal article by Burton Malkiel, author of the classic investment book A Random Walk Down Wall Street. Mr. Malkiel penned the following: "The quintessential low-cost investment vehicles are index funds, which should comprise the core of every investment portfolio. The high fees charged for active management cannot be justified." He went on to say, "Over long periods, about two-thirds of active managers are outperformed by the benchmark indexes. The one-third that may outperform the passive index in one period are generally not the same as in the next period." Mr. Malkiel is certainly not alone in his beliefs. It's clear that Vanguard shares these beliefs and we certainly share them here at The ETF Store. They're one of the main reasons we use Exchange Traded Funds in our client portfolios.
In our market update, we explained the recent selloff in stocks, bonds, and even alternative assets and offered some thoughts on what may lie ahead. In our weekly ETF Spotlight segment, we examined the Vanguard Emerging Markets ETF - ticker VWO, an ETF offering exposure to over 1,000 emerging market stocks for a paltry 0.18% expense ratio. We also discussed where emerging market stocks might fit into an investor's portfolio. Learn more about VWO by visiting www.etfbuzz.com.