Index, bond, income, alternative, emerging market and absolute-return funds had a banner year in 2010.
With investors attracted to its low-cost index funds, Vanguard trumped all other fund families in 2010, at least through November, the latest data available from Financial Research Corp. (see chart, "Best-Selling Fund Complexes of 2010," page 11).
Through the first 11 months of the year, the largest fund company in the nation took $90.2 billion into its mutual funds, with 80% of that number going into index products. Overall, Vanguard's take represented about 34% of all money put into U.S. exchange-traded funds and about 23% of stock and bond mutual fund investments made in the U.S. in 2010.
Vanguard said it was third best year for sales in the company's 34-year history, surpassed only by the $104 billion it took in in 2007 and the $101 billion net inflow in 2009.
The top three fund managers in the U.S. ETF marketplace remain BlackRock (with a 45.2% market share), State Street (23.7% share) and Vanguard (14.9% share.) Collectively, they accounted for approximately 83.7% of the U.S. listed ETF market.
The second-best selling fund company in 2010 through November was PIMCO, taking in $59.7 billion in inflows. The third-best selling fund company in 2010 was BlackRock, with $32.3 billion in inflows. No. 4 was JP Morgan Asset Management, with $20.6 billion in inflows. And No. 5 was Franklin Templeton, with $19.5 billion in inflows.
The best-selling fund at BlackRock over the past year has been the Global Allocation Fund, which has a go-anywhere mandate and invests in both equities and bonds, said Frank Porcelli, managing director and head of BlackRock's U.S. retail business. That has been followed by BlackRock's Global Dividend Income and Equity Dividend Funds.
BlackRock has also continued to build out its retail franchise since its merger with Merrill Lynch in 2006, with a particular focus on getting on the platforms of other national broker-dealers, particularly Wells Fargo, UBS and Morgan Stanley Smith Barney, Porcelli said.
In the past four years, "BlackRock has succeeded in getting more than 150 of our investment products research-approved at these firms," Porcelli said.
Likewise, dividend-paying and bond funds drove JP Morgan's success in 2010, said Jed Laskowitz, managing director of J.P. Morgan Asset Management. The firm's best-selling fund was the J.P. Morgan Strategic Income Opportunities Fund, taking in $5.4 billion. That was followed by the Core Bond Fund ($4.9 billion in inflows), the High Yield Fund ($2.9 billion) and the Short Duration Bond Fund ($2.8 billion).
Dan O'Lear, executive vice president and director of sales at Franklin Templeton, said 2010 was the best sales year in the company's history.
"The main reason is our diverse product line. We were quite fortunate to have good offerings in domestic and international equity and fixed income," O'Lear said.
Ahead of the Curve
Most notably, Franklin Templeton foresaw an equity market pullback as early as 2006 and began promoting its fixed income offerings even before the market decline in 2008. Franklin's strong sales in 2010 "may have been due to the fact that we started talking about bonds earlier" than competitors, O'Lear said.
While 63% of the firm's inflows in 2010 went to all bond classes-short duration, adjustable rate, floating rate, high yield, strategic income and municipals-the best selling Franklin Templeton fixed income fund was the Templeton Global Bond Fund. Again, O'Lear attributed this to a slowly changing sentiment toward both fixed income and international exposure since the mid 2000's.
Another 16% of Franklin Templeton's inflows in 2010 went to hybrid funds, and 21% went to equities.
Just as it was ahead of the fixed income curve four years ago, O'Lear said, Franklin Templeton began promoting its equity funds mid 2009, and has seen sales to its stock funds increase 56% in that timeframe. "It may not be easy for investors to embrace equities, but we are seeing an impact," O'Lear said.
In addition, while Franklin Templeton continues to see consistent sales through the traditional wirehouse and independent bank rep channels, the firm has been beefing up its 401(k) investment only and RIA divisions. "We are seeing things start to move to those areas," O'Lear said.
Eaton Vance, the 8th best-selling fund family in 2010, with $9.5 billion in inflows in the 11 months through November, attributed its tremendous sales to two funds and great success with Morgan Stanley Smith Barney and LPL Financial.
Eaton Vance promoted its Global Macro Absolute Return Fund in 2010, to great success; the fund took in $7 billion last year.
"Given the challenge post 2008 and 2009, we realized that people were looking for absolute returns, a more consistent ride," said Jac McLean, managing director and head of U.S. retail distribution at Eaton Vance. "Historically in its 12-year history, the fund never lost money. That was a pretty significant driver of sales. Until last year, we had never talked about the fund outside the firm or its availability on 401(k) platforms."
In addition, Eaton Vance saw great interest in its portfolio of bank loan floating rate funds, due to the interest in rising interest rates, McLean added.
Eaton Vance sales through wirehouse Morgan Stanley rose 60% year-over-year in 2010, and in the independent channel, Eaton Vance sales at LPL Financial rose 150%, McLean said.
"Focus was the main reason for our success," he said.
Thornburg Asset Management, the 10th best-selling fund family in 2010, with $8.1 billion in inflows in the 11 months through November, attributed the strong sales to four of its 17 fund offerings: the Thornburg International Value Fund, a foreign large-cap blend fund; the Thornburg Investment Income Builder Fund, a dividend fund aimed at Baby Boomers in particular; and the Limited Term Municipal and the Limited Term Taxable Income Funds, two bond funds that take very conservative, laddered approaches whereby they invest in fixed income securities with staggered maturities.
"Those four funds have been driving considerable growth," said Jack Gardner, president of Thornburg Securities Corp. "While sales in 2007 were slightly better, we are very pleased this year with the mix of the best-selling funds-a four-legged stool, if you will, of the bond funds, the dividend fund and the international tilt. In past years, we had a lot weighted on the International Value Fund."