Exchange-Traded Funds at Vanguard (A)

Posted: 1 Mar 2012

See all articles by Bob Pozen

Bob Pozen

Harvard University - Business School (HBS)

Steve T. Vickers

affiliation not provided to SSRN

Date Written: September 30, 2011


Vanguard Group management, led by CEO John Brennan, was considering whether to launch exchange-traded funds (ETFs) in early 2000. ETFs, first created in the early 1990s, combined aspects of traditional mutual funds and closed-end funds. The US ETF industry had reached $36 billion in assets under management, growing rapidly over the past few years. Because ETFs were exclusively index-tracking products, Vanguard, the largest index mutual fund company, had some potential expertise in managing ETFs. However, entering this market would present also unique challenges for Vanguard. Vanguard had a philosophy espousing low-turnover investing, while ETFs enabled short-term trading. The company would also need to develop a distribution network for ETFs. Finally, since Vanguard's mutual fund investors owned the company, management considered whether existing shareholders would benefit from an ETF product launch.

Learning Objective: To educate students about how exchange-traded funds (ETFs) work, their differences from other types of funds, and the strategic issues for ETFs going forward.

Suggested Citation

Pozen, Bob and Vickers, Steve T., Exchange-Traded Funds at Vanguard (A) (September 30, 2011). Harvard Business School Strategy Unit Case No. 311-134, Available at SSRN:

Bob Pozen (Contact Author)

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Steve T. Vickers

affiliation not provided to SSRN ( email )

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