Fidelity, Wellington, and Vanguard: Mega-Manager Comparative Analysis

“The greatest risk is to risk nothing at all.” – Leo Buscaglia

If you think we are only interested in the machinations of those mythological creatures that lurk in the mysterious and complex depths of market microstructure, then you may be missing the plot here. While we do tend to wallow in the weeds from time to time in an unprecedented way, you may have noticed the steady drumbeat of the DaVinci quote that “everything connects to everything else.”

No, that redundancy is not laziness to find a new quote. It’s a purposeful reminder that there is a feedback loop going on here where all the species of “trees” – from the Citadel and Virtu trees to the Vanguard and BlackRock trees and all the flora in between – offer clues for the evolution of the “forest.” If you didn’t catch it in a previously published post, the exhibit below is the latest incarnation of Alphacution’s asset management ecosystem map that is intended to depict the reverberations of new information being converted to price discovery between the various zones…

So, for this installment, we want to continue to balance the scales by adding some thoughts to the movements of the mega-managers at the other end of the map – the passive management zone. Having just completed the first round of modeling for Wellington Management (WMG) and Vanguard Group, we want to emphasize that complement to what has already been developed for Fidelity (FMR).

After all, much like the notable players that operate closest to the sources of liquidity, these three are also private companies, and therefore, it is highly unlikely that anyone has ever considered a comparison like this until now. With that idea as backdrop, the exhibit below is a simple comparison of the long market values (LMVs) of FMR, WMG and Vanguard as provided by the total available sample of 13F reporting beginning Q1 1994 in the case of FMR and Q1 1999 in the cases of WMG and Vanguard and all ending Q4 2018:

Of course, in this exhibit the most prominent observation is the breakaway growth in 13F long market value by Vanguard relative to FMR and WMG in the exact aftermath of the global financial crisis (GFC). This is the impact of their ETF franchise taking hold, plain and simple. (Eventually, we will add BlackRock and others to this analysis.)

Also, consider that these firms are deploying the most traditional buy-and-hold type of strategies which we can observe do not use options and (we assume with high confidence) do not have short positions and are not likely to use leverage. Therefore, unlike the firms in the structural alpha zone, the portfolio values found in 13F reports of firms in the passive management zone are most likely to be one and the same with the actual portfolio values, at least for US securities.

Now, when we convert the prior market values into indices, the picture takes on some additional meaning. While Vanguard still demonstrates breakaway growth in the aftermath of the GFC, it’s Wellington that earns the second place growth of the three over the 80-quarter period, see below:

Here, with Vanguard delivering total growth in 13F LMV of ~300% over 80 quarters, WMG delivers half of that, or ~150% growth in 13F LMV. Bringing up the rear of this 3-member horse race is Fidelity, half again in growth of WMG, or ~75%.

Going forward, what we are looking for is more detailed evidence of the rotation of funds into ETFs (or elsewhere as the case may be) but also to what extent firms without strong ETF franchises are challenged to grow assets – or worse, are impacted into decline. And, since there is another factor that we often call “the incumbency of incumbents,” chances are that it is the smaller firms who are also less likely to have strong ETF franchises who are experiencing the most severe headwinds.

When we add more, you’ll find it here. Watch this space…

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By | 2019-05-29T14:00:52-04:00 May 16th, 2019|Alphacution Feed|

About the Author:

Paul Rowady is the Director of Research for Alphacution Research Conservatory, a research and strategic advisory platform uniquely focused on modeling and benchmarking the impacts of technology on global financial markets and the businesses of trading, asset management and banking. He is a 30-year veteran of the proprietary, quantitative and derivatives trading arenas. Contact:; Follow: @alphacution.