Vanguard Founder Critical of Some ETF Returns

CNBC.com

John Bogle

ETFs (exchange-traded funds) may be one of the greatest marketing tools of the 21st century, but, perhaps, not the best investing tool, founder and former CEO of Vanguard, John Bogle, told CNBC Thursday.

Bogle said among the pitfalls are that ETFs “turn over at a fantastic rate and they reflect the public appetite for performance chasing.”

When Vanguard tracked the returns on 175 ETFs recently, said Bogle, it found investors fell about six percent short per year of the actual index the ETFs were designed to track—adding up to a 30 percent gap over five years.

Bogle did say he's a fan of some ETFs, specifically total market ETFs that cover the S&P 500 Index . “There probably aren’t many investments that are better,” he added.

Bogle, of course, likes index funds, which are a large part of Vanguard's mutual fund business.

Responding to Thursday’s insider trading arrests, Bogle had this to say: “The system in many respects is of greed on Wall Street and in the whole financial sector. It’s pretty pervasive, not wholly pervasive, but it’s all over the place there. It’s one more example of greed taking over, transiting at the very edges of legality.”

An earlier version of this story cited a Morningstar report that said inflows to Vanguard funds dropped in November. Morningstar tells CNBC it has revised its fund flows data to show that Vanguard had $1.2 billion in inflows to its open-end mutual funds in November.