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Vanguard CIO Buckley to take over as CEO from McNabb Jan. 1

BOSTON, July 13 (Reuters) - Vanguard Group, the world's largest mutual fund manager, said on Thursday Chief Executive Bill McNabb will step down at the end of the year and be replaced by Chief Investment Officer Tim Buckley, betting on the internal successor to oversee rapid growth.

McNabb, 60, who took the CEO job in 2008, will remain chairman of the Pennsylvania company where he oversaw massive inflows to its low-cost products, including index funds, after steering the company through the financial crisis.

Vanguard manages about $4 trillion, far eclipsing rivals like Fidelity Investments and T. Rowe Price Group that are better known for actively managed funds.

But Vanguard has also suffered a string of technical glitches since last year and responded by adding staff. Software engineers make up about a quarter of its workforce of about 15,000 people.

"The goal is that we not only lead on investment returns, we lead on our level of service to clients," Buckley, 48, said in an interview.

Another concern has been that index funds could lose their appeal in a market downturn, an environment that in theory could favor some active fund managers. While Vanguard also offers active funds, Buckley said the concern was misplaced.

"There's no good environment for high costs," he said. "Markets will humble you, and volatility will return. You've got to stay disciplined," he said.

McNabb said the timing seemed right to step back from the top job, and that there were no other internal or external candidates to succeed him after working closely with Buckley on Vanguard's executive committee more than 16 years.

Buckley will become the fourth CEO of privately held Vanguard, which began operations in 1975 under founder John C. Bogle, an icon of low-cost investing who remains affiliated with the company but is no longer in a senior leadership role.

Buckley was also named on Thursday as president of Vanguard and appointed a director. Greg Davis, head of fixed income, will take over as chief investment officer.

Vanguard also named two other new directors, Sarah Bloom Raskin, a former U.S. Treasury official, and Deanna Mulligan, CEO of The Guardian Life Insurance Co. (Reporting by Ross Kerber; Editing by Richard Chang)