Global Mutual Funds Market example essay topic

The Vanguard Group Four C Analysis Company: The Vanguard Group, headquartered in Valley Forge, PA, is the nation's second-largest mutual fund and a leading provider of company-sponsored retirement plan services. Vanguard serves come 18 million shareholders accounts and manages approximately $850 billion in US mutual fund ass sets, including more than $260 billion in employer-sponsored retirement plans. Vanguard offers 130 funds to US investors and 40 additional funds in foreign markets. Vanguard's corporate structure creates two major benefits for its shareholders: . Tremendous cost savings. Services with an unwavering client focus Admiral Shares were introduced by Vanguard in November 2000 to recognize and encourage the cost savings associated with large and long-tenured accounts by passing along these savings to these shareholders in the form of lower fund expense ratios.

Vanguard is simplifying the eligibility criteria for Admiral Shares and lowering the account balance requirements, effective May 10, 2005. Under the new criteria, a Vanguard shareholder owning a regular or IRA account will qualify for Admiral Shares under the following circumstances: . The fund account balance totals $100,000 or more. (Previously, a balance of $250,000 was required, or a $150,000 balance in a fund account established for at least three years. ). The fund account balance totals $50,000 or more and the fund account has been established for at least ten years.

(Registration for online account access on Vanguard. com (R) is also required.) Competition: . Fidelity. American Funds In August, Fidelity voluntarily capped expenses on its domestic equity index funds at 0.1 percent, undercutting fees on similar offerings from Vanguard. By making its index mutual funds the cheapest on the market, Fidelity has issued a challenge to Vanguard, and thrown up a significant hurdle for the indexing expert. And the change may well keep some assets under the Fidelity roof. The firm has added $2 billion in new index assets since its initial reduction in fees.

However, Fidelity's $10,000 minimum may put off some new investors. Condition: With Wall Street entering an era of slower earnings growth, every penny of investment return counts, and that means management fees matter more than ever... Rising popularity of low-cost exchange-traded (ETF) and index mutual funds. These baskets of stocks may broadly cover the entire market, or narrowly focus on just a portion of it, such as a sector, industry, global region or country. The main difference between ETFs and index mutual funds is that the former is traded like a stock; ETFs are priced intra day, can be used to establish long and short positions, and each transaction generates a trading cost. Vanguard Group recently launched three new international ETFs, bringing to 23 the number of funds in its ETF family, known as VIPERs.

With just $7 billion in ETF assets, Vanguard has a long way to go before it catches up with market leader Barclays Global Investors, which has some $123 billion under management across 98 domestic i Shares funds; including international offerings, there are more than 120 i Shares. With so much proliferation of product in the industry, there are now a number ways to invest in sector ETFs - through Spurs, through Vanguard's VIPERs series, which track Morgan Stanley Capital International indexes, and the i Shares series from Barclays Global Investors, which follows Dow Jones indexes, among others. Industry estimates indicate that 3.5 million people in the United States have $1 million or more to invest". In a much more challenging and competitive environment, it will be prohibitively expensive to be merely a marketing-driven firm". John J. Brennan, Chairman and CEO " Costs have always mattered in our business, but they will matter more in the decades to come.

Investors are rapidly becoming more sensitive to costs, given the lower market returns they " ve experienced". John J. Brennan, Chairman and CEO Customers: Seven investor segments have been classified based on the Investor Demand Study: 1. Players are generally active return seekers who consist of higher-income, more-educated professionals. They look for the best tools to help themselves optimize their wealth in the short-term, preferring individual stocks. They are highly knowledgeable and personally enjoy their finances. Also, they are highly confident in their financial situation and optimistic about the future.

Most importantly, they are risky and believe in their own ability to invest for short-term gains. 2. Managers consist of the same key demographics as Players but their favorite product is mutual funds. They have the rationale of "buy and hold" and they view mutual funds as the purest expression of their investment philosophy.

Their decision driver is assistance to manage and optimize their investments for long-term growth. 3. Adviser Dependents profile consist of more educated, older and retired demographics. They value advisers for their financial expertise and feel they have earned higher returns by working with advisers. They strongly value personal relationships and it is important that the adviser knows them and their personal situation. Similar to Managers, mutual funds are the preferred product and they also have the "buy and hold" investment philosophy.

4. Complacent independents are generally older investors who prefer cash and mutual funds. They are looking for a great value for the price. They are comfortable with their financial situation and see no reason for change.

They typically distrust advisers and are not open to paying for advice. They hold a long-term view and are conservative in their investment approach, preferring not to get involved in their personal finances day to day. 5. Strivers comprise professional male and younger family demographics. They look for a proven company to help in enhancing their wealth with cash and stocks. They are not satisfied with their current financial situation but are striving to improve the future situation.

They are personally involved in their investments and enjoy managing the investments. They are also risk takers in their approach and are quick-return seekers who are motivated by a desire to make money. They are expected to amass more wealth over time and Vanguard referred to this segment as "Millionaires in the Making". 6. Live for Today ers are typically less educated and younger families.

They prefer a convenient place to do business and are uninvolved in their investment approach. They are short-term focused so there is no need to be involved with investments for the future. 7. Financial avoider's generally consist of lower income, lower education females who look for a place where it's easy to do business.

They are the most distressed about the current financial situation and fearful for the future. They are also the least knowledgeable and not interested in finance and investing as they strongly dislike dealing with finances. Vanguard clients consist of a disproportionately high percentage of managers and complacent independents. Furthermore, there is an "emerging mass-affluent level" which consists of 8.9 million households who have invest able assets between $50,000 and $1 million.

Currently, Vanguard only serves a couple percent of this segment. Finally, Vanguard consumer cults exist on the Internet. One popular forum is called the Vanguard DieHards. What is the Vanguard Diehards forum?

The Vanguard Diehards is one of the many discussion forums found on the Morningstar website. Although it was created to give a small, albeit vocal, group of fans of the The Vanguard Group a place to discuss their favorite mutual funds, the forum quickly became by far the most popular on Morningstar. The forum is characterized by its contributors' commitment to low cost - primarily index - mutual fund investing, its unusually civil tone, and the thoughtful replies to almost all who post a question, no matter what their level of investing knowledge. As to Morningstar, we " ll let them provide their own, quite accurate, description: 'Chicago-based Morningstar is the leading provider of mutual fund, stock, and variable-annuity investment information. An independent company, Morningstar does not own, operate, or hold any interest in mutual funds, stocks, or insurance products. You can count on Morningstar for unbiased data, research, analysis, and candid editorial commentary.

' Who are the Vanguard Diehards? The term may refer to all of those who participate in the forum. Or perhaps it refers to those of us who are strongly influenced by the investment philosophy of Vanguard founder John C. Bogle. This philosophy is fully elucidated in Mr. Bogle's speeches and books and the fiscal principles adhered to by the company he founded, but can be summed up quite easily: . Keep it simple... Costs matter...

Stay the course. SWOT Analysis Strengths: . Strong brand name and image among long-term investors. Minimize internal company costs which minimizes fund costs passed on the consumer (0.26% of assets compared to 1.36% of assets for the industry). Strong customer satisfaction scores and highest 401 k plan satisfaction rating in the industry. Strong team based atmosphere where all employees are crew members Weakness: .

Beginning to stray from original core competencies of low-cost, high-yield, long term investments. No plan for targeting a specific population segment for the future. Lack of promotion and advertising could be damaging the recruitment of new customers. Customer call centers are increasingly understaffed. Opportunities: .

Many competitors are leaving the under $1 million market-place. Offer existing clients incentives to transfer funds currently held with competitors to Vanguard. Active marketing promotions toward a specific population segment Threats: . De-regulation of the financial industry has allowed commercial banks, insurance companies and investment banks to enter one another's business. Consumers are pessimistic about the long-range future of the investment market Leverage: .

Strong brand name and low cost practices could play a significant role in gaining market share in the under $1 million demographic. Use of client rewards programs to offer incentives for existing customers to transfer other accounts to Vanguard Vulnerability: . More expensive to serve the under $1 million marketplace which could result in an increase in administrative cost which would be passed on to fund holders. Growing pessimism about the long-term future of the stock market could stunt growth in the under $1 million marketplace Constraints: . Failure to pay commissions to brokerage houses for referrals, could result in a loss of potential customers to key competitors. Poor customer service could possible damage their growth in the under $1 M segment.

Problems: . Financial industry de-regulation and departure from core competencies could result in a loss of market share Problem Statement: Senior executives at Vanguard are evaluating their marketing strategy. In particular, they are looking at their approach to market segmentation, the organization of the marketing function, and the weight placed on marketing metrics in the corporate dashboard in light of an economic and stock market downturn. Marketing Alternatives: 1) Cheap blanket marketing - statement inserts, incentives (a-la ING Direct), etc.

2) Targeted marketing - data mine the people most likely to be profitable customers, and get them when they are young or steal them for competitors with targeted offers (i.e. free trades, transfers, low initial investments requirements)... this possibility includes creating a more traditional relationship-based advisory arm to compete with the private bankers at Morgan Stanley, Me rill Lynch and the like 3) Strategic partnership with an institution that does not have a mutual funds division - i.e. ABC bank cross-sells bank accounts to V clients, V cross sells mutual funds to ABC bank, or same with XYZ Insurance company, etc. Basically, create a partnership and swap customer lists 4) Acquire another mutual fund powerhouse and use marketing dollars more efficiently as they will be spread over a larger number of accounts 5) Pay for marketing with research, not money. i.e. have a partnership with a website or financial institution where you give them access to your investment analysts reports and they give you free publicity / access to their customers. 6) No change: on the right course with ETF and low cost, low frill strategy. Recommendation: Continue with the current strategy of targeting the under $1 M market and giving our customers what they want (Value Proposition): . Keep it simple...

Costs matter... Stay the course. Charge a redemption fee for all funds traded within 3 months to discourage unprofitable, short-sided customers. Offering low cost is our main competitive advantage. Any additional services would increase cost. Therefore we decide to remain low cost and keep the course.

The Vanguard Group has sort of a cult following with The Vanguard Diehards. We would be afraid of alienating our most trusted customers and followers by flashy marketing a la Wall Street. Source: Datamonitor Market Value The United States mutual funds market grew by 16.0% in 2003, to reach a value of$7,414.1 billion. Market Value Forecast The market is forecast to reach a value of $9,207.7 billion in 2008, an increase of 24.2% since 2003. Market Segmentation The largest sector in the market in 2003, was the equity sector, which accounted for 49.7% of the market's value. Market Segmentation II The US dominates the global mutual funds market.

In 2003, the US accounted for 55.2% of the global market's value. The massive US mutual fund market has also been rocked lately by several scandals involving improper mutual fund trading. Over the past year, a dozen mutual-fund companies have agreed to pay nearly $2 billion in fines. (not Vanguard) Fact Sheet Company name: The Vanguard Group Corporate headquarters: Valley Forge, Pennsylvania Founded: May 1, 1975 First fund: Wellington Fund (inception date: July 1, 1929) Offices: Valley Forge, Pennsylvania; Scottsdale, Arizona; Charlotte, North Carolina; Melbourne, Australia; Brussels, Belgium; Singapore; Tokyo, Japan Total assets: Approximately $850 billion in U.S. mutual funds (as of 05/31/2005) Number of funds: 130 domestic funds (including variable annuity portfolios); 35 additional funds in international markets Number of investors: 18 million institutional and individual shareholder accounts Chairman and CEO: John J. Brennan Number of employees (crew): More than 10,000 U.S. -based Largest fund: Vanguard (R) 500 Index Fund-$104 billion (Admiralty and Investor share classes, as of 5/31/2005) Aggregate expense ratio: 0.23% (expenses as a percentage of 2004 average complex net assets) Mailing address: P.O. Box 2600, Valley Forge, PA 19482 Website address: web.