Index-tracking funds may deliver more risk than investors bargained for

INDEX-TRACKING funds are now so ubiquitous that it’s hard to imagine that when the late Jack Bogle of Vanguard rolled out the first such fund 50 years ago in 1976, the fund was ridiculed as “un-American” and a “sure path to mediocrity”.

Vanguard’s first fund, the First Index Investment Trust tracking the S&P 500, is now called the Vanguard 500 Index Fund. It raised just US$11 million at its launch; today, it has a total of around US$1.7 trillion in assets.

Despite the inauspicious start, indexing has helped to catapult Vanguard into the ranks of fund giants, with a total of US$12 trillion in assets, second to BlackRock.