Yet given that the ETF is over 20 years old, and Vanguard is more than 40 years old, the question arises…why just in the past 5-10 years has the explosive growth finally shown up?
To understand why, reflect back on what it was like 20 years ago to evaluate an actively managed mutual fund. The average consumer only knew how they were doing by getting a once-per-quarter statement showing account balances, or by pulling out The Wall Street Journal stock pages to see the prior day’s closing NAVs. While this approach was fine to monitor that the portfolio was growing–which it was, almost continuously, throughout the 1980s and 1990s–it did nothing to tell investors whether the funds were actually good, or whether the rising tide of a booming stock market was lifting all boats together (even the laggards).But with the internet, for the first time, it was possible to look up not just the closing prices of the funds, but to benchmark them, with actual performance data... And the lesson brought about by that transparency: It turned out that a lot of actively managed mutual funds weren’t beating a simple, passive index fund. And it didn’t require complex calculations and reading a 172-page prospectus to figure it out. A straightforward website could easily collect all the performance data automatically, and calculate the results instantly... The coming Department of Labor fiduciary rule in 2017 will likely drive the trend even further, as advisers who hold out as such will actually be held accountable as advisers (at least with respect to retirement accounts). Which means the adviser has to justify that the actively managed fund really is worth the additional management fee over a lower-cost passive index ETF instead.