From the April 2007 issue of Research Magazine • Subscribe!

April 1, 2007

Three Big Players Stay Strong in 2006-2007

The industry's players continue to dominate the charts, with increasing assets and net flows both in 2006 and early 2007.

To stay on top, American Funds has rolled out nine target-date funds for those set to retire between 2010 and 2050.

American Funds' Growth Fund of America has some $167 billion in assets, according to the Boston-based Financial Research Corporation, making it the biggest fund of 2006 in terms of assets. Last year, the fund attracted $19.2 billion in assets -- up from the $18 billion that came in during 2005. Other popular American Funds products include the Capital Income Builder and EuroPac funds.

Vanguard is moving to expand its product line as well, with a focus on helping investors target international investments.

"We have about $190 billion in mutual fund assets via financial advisors," says Martha Papariello, head of the Vanguard Financial Advisor Services Group that includes about 70 individuals working with broker-dealers, RIAs, banks and other firms. "We continue to see great growth in fixed-income products, which are something Vanguard is traditionally known for, as well as in our index products. This is where we've seen especially fantastic growth."

"It's hard to beat us on expense ratio," Papariello says.

"Based on our lengthy experience, we are always careful and targeted in what products we are coming out with," she explains. "Still, we want to be proactive in the market."

Sales of the Vanguard FTSE All-World ex-U.S. Index Fund began in early March. The fund invests in large- and mid-cap stocks of companies in 47 foreign countries, including Canada. Its investor shares have an estimated expense ratio of 0.40 percent, while its institutional shares and ETF shares have estimated expense ratios of 0.15 percent and 0.25 percent respectively.

Fidelity, which analysts say has been "bulking up" its research staff, has seen strong growth in its target-date or Freedom Fund lineup. Assets in these funds sold via advisors nearly doubled in 2006 to $4 billion, up from $2.3 billion in 2005. Assets in the funds sold directly by Fidelity to individual investors grew to $60 billion in 2006 from $41 billion in 2005.

"The growth of these funds has just been tremendous," shares Craig Huntley, executive vice president of Fidelity Investment Institutional Services. "Starting in 1996, we began distributing them directly to consumers ... and then in 2003, they began being sold through advisors. And now, in the aggregate, we have more than $64 billion of assets in these funds. It's a very important product for us."

"Retirement leadership is also a very significant focus for us," Huntley continues. "This is about taking people from the savings or accumulation into the distribution phase. It's an area where we see a great need in the marketplace ... We have 190 individuals who serve as educational resources to advisors and others, including their customers. We are trying to bring value to the marketplace to help professionals grow their business. It's about doing more than providing products."

FRC's data put each of the largest players at under $1 trillion in terms of assets, excluding funds of funds, though other industry sources say Fidelity has some $1.4 trillion in total assets and Vanguard $1.1 trillion.

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Janet Levaux is the managing editor of Research; reach her at jlevaux@researchmag.com.

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