The Vanguard Group, the manager of the world's largest U.S. stock fund, has a message for investors unsettled by the recent market volatility: Expect more of it.
Gerry O'Reilly, the Vanguard portfolio manager who runs its Total Stock Market Index Fund (VTSMX) — which isn't only the largest U.S. equity fund but the largest equity fund in the world — told CNBC's Bob Pisani on Tuesday that Vanguard expects the volatility to continue for the rest of the year.
His Vanguard fund — which includes multiple share classes and an ETF, the Vanguard Total Stock Market ETF (VTI) — has $700 billion in assets across the entire universe of 3,600 U.S. stocks, from Apple all the way down to No. 3,600.
What is O'Reilly doing amid the volatility? Buying more of those stocks.
When the Dow dropped by more than 800 points on Oct. 10 and the S&P 500 was down 3 percent, the Vanguard index fund giant was a net buyer, O'Reilly said. As a passive fund manager, he isn't making a call on the market or stock value. The buying by O'Reilly's giant fund reflects the fact that even amid the big Dow plunges and recent evidence that buying on the dip isn't working — long-term-oriented Vanguard shareholders continue to look for opportunities to put more money into stocks. Days when the stock market is beaten up are among those opportunities.
"Shareholders direct whether I trade or not; it is cash flows and institutions sending in money on those days triggering us to trade," O'Reilly said.
In October, Vanguard took in a net positive $18 billion in flows into its equity funds, he said. "The net cash flows are triggering us," he said.
Vanguard saw "slight" outflows in bonds in October.
In November the ETF version of his fund, VTI, so far has taken in close to $1 billion, and more than $1.5 billion in the volatile fourth quarter.
All the big equity ETFs have seen continued inflows even as volatility has picked up, with the iShares Core S&P 500 (IVV) and Vanguard S&P 500 (VOO) leading the way, with flows of $1.9 billion and $1.2 billion, respectively, through Nov. 27, according to XTF.com data. Though the iShares Core Emerging Markets ETF (IEMG) has been No. 1 in November flows, at over $2 billion, as investors sour on the U.S. stock market and look for beaten-up overseas equities to buy at better values.
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