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Portfolio > Economy & Markets > Fixed Income

Vanguard, PIMCO Dominate ’12 Global Fund Flows: Morningstar

By Janet Levaux

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While Vanguard and PIMCO continue to prove their strength in the U.S. marketplace, a Morningstar study released Friday shows the two firms had a stellar 2012 worldwide in terms of asset flows.

“No survey of the global fund industry is complete without a discourse on the breathtaking successes of Vanguard and PIMCO. These two giants captured 16% and 18%, respectively, of worldwide long-term mutual fund flows in 2012,” the fund-research firm said in “2012: Annual Global Flows Report.”

When looking at both mutual funds and ETFs, Vanguard raked in $145 billion in long-term flows. It ended the year with $1.9 trillion in assets, and a most of its worldwide AUM is in funds with a 4- or 5-star Morningstar rating.

Plus, the firm’s 2012 flow is greater than the sum of flows into 3,244 fund groups, though only 3% of its AUM is non-U.S. based.

As for PIMCO, the California manager has brought in roughly $353 billion of inflows since early 2008. It broke the $100 billion barrier for the first time in 2012.

The group “responded to the financial crisis with products that resonate with investor tastes, such as Real Return, Commodity Real Return, Unconstrained Bond, and Emerging Local Bond,” explained Morningstar, noting that about one third of PIMCO flows in 2012 went into funds without a three-year track record.

About 20% of the assets managed by PIMCO, which is owned by Paris-based Allianz, are held outside the United States.  

“Despite ongoing worldwide economic uncertainty, the global fund management industry grew at a 3.9% organic growth rate in 2012,” said Syl Flood, product manager, investment research for Morningstar, in a statement.

Excluding money market funds, the $565 billion that went into mutual funds in 2012 fell short $746 billion in 2009 flows and $672 billion in 2010.

“The prevailing global trend in 2012 was investors’ hunger for yield and quest for the perceived safety of fixed-income funds. Worldwide, fixed-income funds gathered $535 billion in 2012, or nearly 95% of long-term net inflows.”

Domestic Scene

In the U.S., net inflows into both funds and ETFs hit $434 billion, the largest sum since 2009. “The strong flows were driven by a sharp rebound in open-end fund flows back to pre-crisis levels and record-breaking flows into ETFs. Strong flows and market appreciation allowed industry assets to hit a record $10.6 trillion,” Morningstar’s analysts said.

And it was really fixed income that ruled.

“The five-year trend of investor preference for fixed income only intensified in 2012 as 84% of all flows went into taxable- or municipal-bond funds. U.S. stock funds were in net redemptions for the fifth-straight year, as a record $65 billion left the asset class,” the fund group explained.

The fixed-income shop DoubleLine, for instance, grew by 127% in 2012 to about $41 billion in assets.

Future Shock

The latest fund trends seem to show that the current powerhouses are well positioned for further momentum.

“Vanguard is uniquely positioned to benefit from growing investor awareness of cost in investing outcomes,” the Morningstar report concludes.

“Vanguard’s core characteristics—low costs, a broad lineup of products, direct distribution, and a mutualized ownership structure—together weave an inimitable web of activities that keeps rival fund executives awake at night. Whether Vanguard can leverage its primarily American success in the increasingly American-looking U.K. market will foreshadow continental Europe’s future.”

And PIMCO’s future looks bright as well.

“The firm is not content to rest on the success of its fixed-income franchise. It is aggressively seeking to establish a robust non-fixed-income product lineup for the day when investor sentiment favors equities once again,” the fund-research firm shared.

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