Bill McNabb joined Vanguard more than 25 years ago, and ascended to the chief executive role in 2008, just as the economy was about to unravel—not that it matters much to Vanguard, which always emphasizes the long term.

Indeed, McNabb has presided over Vanguard’s continuing rise in the world of indexing and low-cost investment. The firm, now the biggest mutual fund company in the world, with more than $2 trillion in assets, hauled in over $140 billion last year—more than a third of that in ETFs.

While it’s impossible to get anyone at Vanguard to acknowledge that it’s part of what journalists are calling a fee war in the ETF industry, McNabb told IndexUniverse.com Managing Editor Olly Ludwig that, from his company’s perspective, it’s all about economies of scale and the long “inexorable” march toward lower and lower fees.

IU.com: The index changes of Oct. 2 grabbed the world by surprise, and one of the surprises along the way was that iShares' EEM seems to have slowed the flows into VWO. Can you shed some light on your expectations going into the index change versus how things are transpiring?

McNabb: One thing I would say right off the bat—and I’m sure this won’t shock you—is we don’t spend a lot of time looking at what iShares is doing, and so forth. When we made this change, we knew it was great for the long run. We also knew there would be potential short-term reaction. So I’ve actually been surprised on the upside—we have seen very little money leave VWO. What certainly did happen is the ongoing flows into VWO slowed down, and it certainly appears much of that has gone to EEM or wherever else.

So, was there an opportunity cost? I guess you could say so. But again, for us, getting the cost certainty and what we think is ultimately a better benchmark is well worth it. VWO is still the largest emerging markets ETF. And again, most of our investors have remained.

IU.com: We make a lot in the journalistic world of the so-called fee war in the ETF industry, though Vanguard never fails to say it’s not taking part. It struck me that maybe the way to frame this correctly from a Vanguard perspective is that maybe it isn’t a fee war, but perhaps a “values war,” where you’re proposing something really quite different from the rest. Is that fair?

McNabb: I actually think that’s directionally more correct than a fee war. I think what you’re seeing is a realization certainly by the investing public that costs really do matter, and it’s the one thing you can control in the investment equation. This is not the ’80s and ’90s, when you had double-digit equity market returns. Investors didn’t care what they were paying, or cared less.

I look at all this as a really positive set of changes. I get asked the question all the time: Are we concerned that other people are emulating what we do? I take just the opposite track. I think it’s great for investors. There is more low-cost choice and I don’t think it’s over.

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