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Firm stability and fund selection trump performance as key drivers of mutual fund loyalty

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Market volatility means today’s investor no longer looks at a mutual fund’s performance, but the stability of a mutual fund company and the breadth of its offerings.

Cogent Research’s Investor Brandscape 2009 analyzes what drives loyalty toward individual mutual fund companies. Findings show little importance is place upon short- and mid-term investment performance, along with performance consistence.

“Everyone understands investors want and expect to see strong investment performance. That’s a given,” said Antonio Ferreira, managing director of Cogent’s Wealth Management Group. “But in a broad market decline and in such uncertain times, investors are obviously looking for a safe harbor. Frankly, they want assurance that companies they invest with today will still be here tomorrow. And when they find a partner they trust, investors want enough options within a fund family to suit more of their changing investment needs.”

The study computes “Net Promoter Scores” (NPS) for 38 leading mutual fund companies; firms that receive the highest ratings from investors on perceived financial stability and product offerings also have the highest NPS (on an 84-point spread). On average, mutual fund companies received a rating of -29, which indicates, according to Ferreira, “Nine out of ten fund companies have more customers at risk of defecting than remaining loyal. In times like these, where positive investment performance is difficult, firms must provide or promote other offerings that address the existing mood of the market – thus, smaller or boutique firms with limited options will have a tough time maintaining loyalty due to lack of product or service breadth”

Top performers for customer loyalty (which Cogent indicates as “Stars”) include Vanguard, Fidelity Advisor Funds, and Fidelity Investments (with NPS Scores of 21, 7, and 6 respectively). These three firms are the only mutual fund companies to garner positive NPS scores (Though Fidelity faced the biggest outflow from a single company at $40 billion in 2008, according to Morningstar.)

The bottom performers across all firms – those Cogent designates as “Drifters” – are Calamos Funds, DWS Investments, and MFS Investment Management (with NPS Scores of -63, -62, and -59 respectively).

Mutual Fund Company Investor Loyalty Rankings:

1. Vanguard Group
2. Fidelity Advisor Funds
3. Fidelity Investments
4. T. Rowe Price
5. American Funds
6. Franklin Templeton Funds
7. Schwab/Laudus Funds
8. Dodge & Cox Funds
9. RiverSource (formerly American Express Funds)
10. ING Funds
11. Morgan Stanley Investment Advisors Funds
12. JPMorgan Funds
13. Davis Funds
14. American Century Funds
15. Principal Financial
16. Wells Fargo Funds
17. Lord Abbett Funds
18. Janus Funds
19. Columbia Management Funds
20. Evergreen Investments
21. Dreyfus Funds
22. Oakmark Funds
23. PIMCO Funds
24. OppenheimerFunds
25. AllianceBernstein Funds
26. John Hancock Funds
27. The Hartford
28. Van Kampen
29. Legg Mason Funds
30. Neuberger Berman
31. BlackRock Funds
32. Goldman Sachs Funds
33. Eaton Vance Funds
34. Invesco Aim Funds
35. Putnam Investments
36. MFS Investment Management
37. DWS Investments (formerly DWS Scudder Funds)
38. Calamos Funds