Talking ETFs With Fund Giant Vanguard

Vanguard, widely considered the King Kong of index funds, doubled its exchange-traded fund assets in 2005. That's good news for the company, especially because it has been working hard to improve its standing among ETF players.

But despite the big jump in business, Vanguard's trademarked brand of ETFs, VIPERs, still ranks a distant fourth in the overall ETF marketplace, and industry watchers are wondering why it's taking so long for the biggest gorilla in the fund jungle to climb in the rankings.

Through November, Vanguard had a total of $10.6 billion in its VIPERs nest, up from $5.5 billion a year earlier. Within Vanguard, though, the jump was barely a blip, because VIPERs comprise barely 1% of the company's $920 billion in total assets.

Barclay's Global Investors , by comparison, leads the industry with $164 billion in ETF assets, or 11% of its $1.4 trillion in total assets. Barclays is followed by State Street and Bank of New York(BK), which claim ETF assets of $80.3 billion and $30 billion, respectively.

In order to get a recap of Vanguard's ETF performance in 2005, as well as its game plan for getting ahead in 2006, TheStreet.com chatted with Bert Dalby, a principal in Vanguard's Financial Advisor Services group.

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TheStreet.com: How would you characterize the ETF market in 2005?

Dalby: We continued to see growth in ETF assets and an expansion of product offerings in 2005. In addition, price competition entered the ETF marketplace for the first time. The expense ratios of 20 Vanguard VIPERs declined 3 to 12 basis points in early 2005, with the expenses of Total Stock Market VIPERs (VTI) falling to an industry low 0.07%.

What can we expect from Vanguard in 2006? Any new ETFs on the horizon?

I think you'll see broader acceptance of VIPERs from the adviser community, as well as continued placement on additional brokerage platforms. In the long run, we believe that financial advisers and institutional investors are too savvy not to recognize the advantages of VIPERs -- lower-cost, more broadly diversified ETFs from a recognized indexing leader.