00:00These are passive funds but they don't have the U.S. involved at all. Develop markets ex-U.S. What
00:06prompted this creation of these two funds.
00:09Thanks for having me. Yeah we saw an opportunity with these funds VDV and VDG. So as you said developed
00:15growth and value to bring broad based index exposure at that low cost you'd expect from Vanguard.
00:22Eight basis points. So let's talk about this. I mean my thesis is you guys were sitting around. Well you
00:29don't sit around much but you're working and someone's like hey look at the AQI. That's the all country world.
00:34If you look the U.S. makes up 65 percent of the world in terms of market cap. Number two
00:41is Japan at five percent. It's a big drop. That is insane.
00:44And you probably thought our clients are way over leveraged U.S. Let's give them something that just gives like
00:50no U.S. at all. Am I right? Like is that what the idea was?
00:54These products we weren't trying to time any particular market. We really view these as long-term building blocks in
00:59a portfolio.
01:00We've long believed in the benefits of international diversification. Why have all of your focus on a single market for
01:08having winners and losers when you can have that diversification benefit and spread your risk?
01:13What kind of demand have you seen for products that exclude the United States and focus on international markets?
01:20Yeah. We have seen investors looking to build out in different ways their international equity portfolios. And so we already
01:28offer these broad-based index funds.
01:30Think VXUS, VEA, VWO. But we see more investors now looking for more targeted exposures and these funds give them
01:38more flexibility there.
01:39And to your point, Eric, as we just showed in that chart, the U.S. makes up the lion's share
01:43of equity.
01:44It looks like Pac-Man. It's like eating everything.
01:46Yes, exactly. Sixty-five percent compared to everything else. I mean, nothing else tops five percent. And Taiwan is big
01:51because of TSMC, essentially.
01:53So, look, obviously, I'm pretty familiar with your founder, Jack Bogle, having written a book on it, shameless plug, called
02:00The Bogle Effect.
02:01And he trashes a lot of things, including international. And you're not alone. He trashed ETFs. He's trashed smart beta.
02:09How would you talk to somebody who's a very, like a Bogle head, who comes and says, hey, look, Jack
02:14told me I don't need international.
02:15I just need U.S., so why would I ever buy these? Yeah, I think we continue to be focused
02:21on the long-term investment principles that Bogle espoused.
02:25And we do see if you have U.S. exposure in your portfolio, yeah, you're going to have some clear
02:32leaders and winners in the market today.
02:34But over time, we know leadership shifts in markets. And so, as you see the AI megatrend play out, we
02:41see leadership expanding beyond the U.S.
02:44And there being real opportunity. You think in international, you think a lot of financials, a lot of companies that
02:51can benefit from AI productivity gains.
02:53So, spread out the risk and return potential.
02:56Bogle heads are also pro-passive, right? Anti-active?
02:59It's all about letting the index of the world. Very anti-almost everything, except, like, cheap beta.
03:03Okay, cheap beta is the Bogle head mantra. Most of Vanguard's recent high-profile launches have all been active.
03:10I mean, there's been a lot of active ETFs. So, I'm curious, why go back to passive now?
03:14Yeah, so, as you know, we have a very robust, mature index equity lineup. But for us, it's not about
03:21index versus active.
03:23We see these strategies meeting different investor needs. I'm focused on the index equity space,
03:28and there's still demand for low-cost beta. But we can see that as a complement or just a different
03:33strategy,
03:33and we want to offer both with active and index to our investors.
03:38So, you and BlackRock are like King Kong and Godzilla, right? Everybody else is just feeding off the crumbs.
03:43So, these two are going at it. You have, like, $4.5 trillion each in U.S. ETF assets.
03:47You're less than $100 billion behind. How ambitious is Vanguard to finally pass BlackRock?
03:55Vu already passed by. These probably will help the cause. You know, how big is market share for you guys?
04:03Yeah, so, for us, it's less about the outcomes, less about, you know, taking over that leadership position,
04:08and it does really anchor back to serving our investors for the long term.
04:13So, we love to see the cash flow, but that, to us, is really just a testament of doing what's
04:17right for investors.
04:18I mean, is this something you guys talk about in your Monday meetings, you know, keeping track of who's where?
04:24You know, we all have our regular reports, but truly, we are focused on, and that's what's great about our
04:30company structure,
04:31is the way we are structured. We are aligned with our investors.
04:34So, our scoreboards are really more about how are we returning benefits, how are we lowering fees in a very
04:41sustainable way over time.
04:42You know what's amazing? Even though BlackRock and Vanguard have the same assets, BlackRock is 4x the revenue.
04:48Because your asset-weighted average fee is 4 bps. These actually bring it up a little bit.
04:53These are, like, expensive for you guys. But how hard is it to get a new ETF through the approval
04:58process at Vanguard?
04:59Because you don't launch a lot, and then how do you pick that fee of 8?
05:02Yep, so, as I'm sure you can imagine, we have a very rigorous, disciplined approach to product development.
05:08We have our product design principles, and every product we have to vet.
05:13Long-term investment merit, enduring client demand, and a product where Vanguard can have impact and be differentiated in the
05:20market as well.
05:21When we say 8 basis points, yeah, we wanted to bring our highly efficient indexing to the market,
05:27and, I mean, that is a very competitive fee for this product.
05:30What kind of feedback have you gotten from advisors on these two new products?
05:33Yeah, positive feedback. In fact, there was a lot of advisors asking for a lower-cost alternative in this space.
05:39All existing products were 20, 30 basis points. A lot of active strategies in this sector.
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