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Vanguard assets up $1 trillion, fees up $1 billion/year, since 2011

Where's it all go?

The Bond King is dead; long live the Bond King, writes Daniel P. Wiener, publisher of the Independent Adviser for Vanguard Investors newsletter.

He's talking about Pacific Investment Management Co. (PIMCO) boss Bill Gross leaving the company he founded, followed by more than $20 billion in PIMCO Total Return customer assets reportedly leaving what was the world's largest mutual fund. PIMCO is no longer tops; Wiener notes that Vanguard's Total Bond Market Index fund, and its various related funds, as of the end of summer totalled over $222 billion. "It's safe to say" that Vanguard bond manager Joshua Barrickman now manages "the most money in the bond universe," Wiener concludes.

Which is a piece of a bigger story: Vanguard now manages more than $2.7 billion in the U.S., which is 18% of the mutual fund business, according to data founder John C. Bogle sent Vanguard managers and posted on his Web site for the company's 40th birthday last month. Worldwide assets top $3 trillion. Vanguard has more than doubled since 2009, which was a record year for Vanguard despite the stock market collapse, as investors snapped up its bond funds; the group has added more than $1 trillion more just since 2011.

Which also means a flood of new revenues to the Malvern-based company. According to Bogle, "Fund costs," or fees paid by investors, were annualized at $3.77 billion for this year, up from $3.45 billion last year, $2.6 billion in 2011. Total fees may be higher: that data works out average fees to something below 0.14%; Morningstar estimates Vanguard fees at around 0.15%; Vanguard spokesman John Woerth says the company uses 0.19%.

UPDATED: Where does the billion dollars added to annual fees over the last three years go? "We invest a considerable amount back into the business to improve efficiencies and enhance services," Woerth says.  "There remain costs to run the funds, pay our advisors, custodial fees, crew comp and benefits, etc. And many of these costs are rising in addition to the increased costs associated with our extraordinary domestic growth and international expansion. Finally, as noted previously, we are investing considerable sums in technology and infrastructure to better serve clients and further lower costs. Your $1 billion is thus fully accounted for. "