Sign up today and take advantage of member-only content — the kind of timely, cutting edge industry insight that only Money Management Executive can deliver.
  • Exclusive Online Only Content
  • Free Daily Email News Alerts
  • Asset Management Blogs

Fixed Income, Low Fees Fuel Top Sellers

Regardless of the year, the market environment or the mood of investors, performance always plays strongly into driving sales for fund complexes. And that was certainly the case for the firms that dominated four key sales channels last year.

But a number of other factors also boosted sales for those firms, including a strong offering of fixed-income products, a reputation for providing products with low fees and a conservative approach - even among growth products - with a value heavy investment strategy, analysts said.

The winners of our 2002 MFMN Top Selling Fund Complex Award were those firms that posted the strongest sales numbers through October of last year. Data from Boston-based Financial Research Corp. show that the Vanguard Group trumped all other firms by a wide margin in the direct channel this year; American Funds dominated the wholesale market; PIMCO won out with institutional investors, and One Group reigned in the bank channel.

Vanguard racked up nearly $30.4 billion in net sales from direct buyers through October, outpacing the next most successful firm, Fidelity, by about $23 billion. The overwhelming success was largely the result of Vanguard's reputation for charging low fees. Analysts said marketing those values has paid off tremendously for Vanguard - especially as the market continues its protracted slump.

"The expense ratios are low and they've been pounding on that message for a long time," said Scott Cooley, who tracks Vanguard for fund researcher Morningstar.

The firm, which offers a total of 134 funds, posted tremendous gains with its fixed-income products in October alone, amounting to about $2.3 billion in net sales. Investors favored Vanguard's equity products in October as well, to the tune of more than $1.8 billion.

Fewer Direct Competitors

Analysts said Vanguard has benefited from a shrinking number of companies competing in the direct channel. Many are switching their products to offer loaded shares and are chasing intermediaries in response to investors' demand for more advice. But Vanguard investors, who have chosen the firm's well-known index funds, don't place such a high premium on advice because they aren't trying to beat the market. That outlook among investors has helped in Vanguard's domination of the direct channel, analysts said.

The firm is widely regarded for its straightedged, simple approach to fund investing. It didn't buy ultra-hyped Internet stocks during the tech boom; it has never run advertisements bragging of triple-digit returns; and it is known for its honest appraisal of market conditions, Cooley said.

"That may seem paternalistic at times, but people realize too that Vanguard, whether it does the right or wrong thing, is acting in shareholders' interests," Cooley said.

American Funds: Wholesale Channel Champs

American Funds, meanwhile, posted just less than $17.6 billion in sales through wholesalers, beating the next most successful firm, MFS Investment Management, by nearly $12 billion.

The firm's best-selling product was a growth fund at a time when growth products are generally considered out of favor with investors who are still licking their wounds from the technology crash. That product, American Funds' Growth Fund of America, has posted net inflows of $5.3 billion through October, according to FRC. The fund holds $37 billion in assets, according to Bloomberg. And although its performance was on the negative side, it has outpaced its peers.

"Their style has been effective during volatile times over the past six to 18 years," said Morningstar analyst Bill Harding. "They have more risk controls in place than a lot of funds. They have lots of holdings and they don't tend to make huge sector bets."

One Group the One to Beat

In the bank channel, One Group outpaced its next-best selling peer, WM Funds, by nearly $560 million in net sales, with total sales through October of $1.56 billion.

A variety of fixed-income products and relatively low fees have helped drive sales for the firm, which offers nearly 140 funds. In October, the firm garnered $97 million in net sales within its line of bond funds. Net equity sales for the month totaled $201 million.

Investors have favored One Group for its "reasonable fees," adroit stock-picking ability and its lack of style drift, Harding said. "They've been very good at sticking within the parameters of what they set out to do," he said. "The performance has been strong so people have gotten what they expected out of their funds. That has been an important selling point for them."

Boom on Bonds Fuels PIMCO

PIMCO Funds dominated the institutional channel this year with $12.6 billion in net sales. PIMCO also outsold its competitors by a gaping margin. SEI, with about $3.4 billion in net sales through October, was the next best performing firm among institutional investors.

PIMCO's sales were largely driven by bond fund sales and the reputation of one of the industry's best-known fund managers, Bill Gross, said Kristin Adamonis, an analyst at FRC. The firm did more than $2 billion in fixed-income fund sales in October alone.

Net sales for equity funds were at about $149 million in October, but Brian Portnoy, a Morningstar analyst, said the firm's equity sales have been "mixed to worse-than-mixed" because of their growth orientation.

"Like all growth funds, they haven't done that well on an absolute basis," he said. "By and large, it's not been what you'd call a banner year for some of these stock funds."

But the firm's bond managers, mostly located in Newport Beach, Calif., have earned stellar reputations in the marketplace, Portnoy said. "Fixed income is doing really well and PIMCO's got the most prominent funds in that part of the market, so it's no surprise they're getting assets there. PIMCO is an obvious place for people to go on the fixed-income side."