Nearly 50 years ago, Vanguard disrupted the investing world by launching the first index fund for individual investors. Now comes the sequel

Nearly 50 years ago, Vanguard disrupted the investing world by launching the first index fund for individual investors. Here comes the sequel.

Investors have tried everything to avoid paying those pesky capital gains tax bills in their mutual funds. Now Vanguard’s got an ETF share class for that — and by most indications, it could upend the $28 trillion fund industry. 

The world’s second largest investment company after BlackRock, the Malvern, Pennsylvania-based Vanguard has experimented with a method for constructing exchange-traded fund share classes of its existing mutual funds over the past two decades. It’s been so successful that the company reportedly used the structure in 14 stock funds that booked $191 billion in gains for investors as of 2019 and paid out a total tax bill to the Internal Revenue Service of $0.

It’s a mouth-watering metric that took on even more significance after Vanguard’s prized patent expired last year. Now, Charles Schwab, Morgan Stanley, Fidelity, and roughly a dozen other companies have filed applications with the Securities and Exchange Commission to copy the structure. While it’s unclear whether the agency will approve the applications, its eventual decision holds enormous sway not only on the industry but also potentially over hundreds of billions of dollars in revenue for the Treasury.

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