From Investment Intelligencer
Low-cost fund leader Vanguard had another strong year in 2006, with 78% of its funds beating their peer-group averages. Over longer periods–three, five, and ten years–the percentage is even higher: more than 80%.
This performance, of course, has nothing to do with superior stock-picking and market timing–and everything to do with costs. The industry-wide average mutual fund expense ratio was 1.27% of assets in 2006. The average Vanguard fund expense ratio was 0.21%. Since 1975, moreover, Vanguard’s average expense ratio has dropped to one-quarter of its original level–while the industry-wide average has risen. 
Given Vanguard’s consistently strong performance, it is no wonder that it now manages more than $1 trillion of assets and is the second largest fund firm in the world. What is a wonder is why more fund companies haven’t copied Vanguard’s "secret formula."
Actually, it’s not a wonder. Most other fund companies are for-profit corporations, many of them publicly held. For-profit corporations, especially publicly-owned ones, have impatient shareholders to please. And for impatient shareholders, even a three-to-five year time horizon is eternity.
