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May 26, 2024
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Vanguard unfazed by boycott calls after shunning Bitcoin ETFs

John Clifton “Jack” Bogle, the late founder of the Vanguard Group, suggested people “avoid Bitcoin like the plague.” Scott Eells/Bloomberg via Getty Images

In 2017, legendary investor Jack Bogle famously warned people to “avoid Bitcoin like the plague.” More than six years later, Vanguard Group Inc. is still stoking the crypto world’s ire by sticking to the conservative investing approach of its late founder.

Amid the euphoria unleashed by the long-awaited debut of the first fully fledged Bitcoin exchange-traded funds in the US, Vanguard sparked uproar last week with its pointed decision to refuse to offer the new ETFs on its gigantic trading platform.

#BoycottVanguard started trending on X, accumulating thousands of posts, with users pledging to pull their money from the asset management giant.

Vanguard’s response? To double down. The firm, which controls $8.6 trillion, has not only snubbed Bitcoin-spot products, it’s yanked futures-backed Bitcoin funds from its platform, too. That means it now offers no crypto products whatsoever, unlike its peers.

The saga speaks to Vanguard’s deeply entrenched investing philosophy, one that hearkens back to Bogle himself. The Valley Forge, Pennsylvania-based firm was founded by the money management icon in 1975 on a bedrock of investing in stocks and bonds — assets that generate cash flow, dividends and interest payments — while eschewing commodities.

Vanguard has traditionally steered clear of the latter — seen lacking intrinsic value and an internal rate of return — with Bogle dismissing commodity investing as “total speculation.” Modern-day Vanguard still follows that gospel closely nearly a half-century later, with just one commodity fund out of more than 400 offered worldwide.

“It’s not surprising whatsoever that Vanguard has taken this stance given that there’s ample precedent for it and more fundamentally, it’s in alignment with their long-held investment principles,” said Ben Johnson, head of client solutions at Morningstar Inc.

That discipline extends beyond Vanguard’s own lineup of mutual funds and ETFs and into its brokerage arm as well. While commodity ETFs are available to trade, the company pulled “very speculative and highly complex” leveraged and inverse products from its platform in 2019.

Even as billions roll into the newly-launched spot Bitcoin ETFs, Vanguard has no plans to offer any crypto-related products, a spokesperson said.

‘Don’t Need Gatekeepers’

Vanguard’s rejection of crypto stands in stark contrast to its industry peers. BlackRock Inc., Fidelity and Invesco Ltd. all launched spot Bitcoin ETFs last week, while centuries-old State Street is providing fund servicing to several of the products.

Meanwhile, Franklin Templeton has gone all-in on marketing its Bitcoin fund, putting laser-eyes on its X avatar of Benjamin Franklin and advocating for investors to add Bitcoin to 60/40 portfolios.

Traditional finance’s embrace of Bitcoin ETFs has only fueled online vitriol against Vanguard.

“We don’t need gatekeepers to tell us how to invest,” reads one X post with more than 2,600 likes. “I’ll go where me and my money are treated best,” reads another with a screenshot of a Vanguard plan distribution request.

Still, it’s highly unlikely the #BoycottVanguard movement will even make a dent in the company’s business, according to industry expert Dave Nadig.

“They won’t lose a single 401k plan over it, and an infinitesimally small number of brokerage clients,” Nadig said.

Meanwhile, cash continues to pour into Vanguard’s lineup. Roughly $4.4 billion has been added to Vanguard’s stable of 84 ETFs in the past week alone, after luring $157 billion in 2023, Bloomberg data show, more than any other asset manager. Vanguard has grown its share of the $8 trillion ETF market for 21 consecutive years, putting it on the cusp of dethroning industry leader BlackRock.

Despite drawing the crypto community’s disdain, Vanguard — with its rock-bottom fees and unique corporate structure in which fund investors elect its board members and effectively own the company — has still attracted something of a cult following online. On forum Bogleheads.org, any posts related to “investment strategies based on securities or physical assets that have no underlying value or negative expected long term returns” (hint: crypto) are banned.

While shunning crypto ETFs could be a long-term risk should it ultimately put off younger investors, it’s a small one relative to Vanguard’s loyal base, according to Bloomberg Intelligence’s Eric Balchunas.

“To be honest, Vanguard can’t keep money from coming in,” said Balchunas, Bloomberg Intelligence’s senior ETF analyst and the author of The Bogle Effect. “Even if Vanguard said, ‘Please stop investing with us,’ it wouldn’t do anything. They have banked so much trust and goodwill with their customers.”

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