Vanguard reclaimed its title as the top seller of long-term funds in 2001 after its four-year reign as the industry's best selling fund complex ended in 2000. By reclaiming the top spot, Vanguard has shown that it is an all-season complex that can outsell other firms in both bull and bear markets, analysts said.

Vanguard, which garnered $35.5 billion in net new assets last year, had a better year than in 2000 when it brought in $21.9 billion in net new assets and finished second behind Janus, which attracted $37 billion, according to Financial Research Corp.

Vanguard's ability to reassume its leadership position is in large part due to a diverse lineup of products that are backed by the firm's low-cost brand, said Daniel Wiener, the editor of the monthly newsletter, The Independent Adviser for Vanguard Investors.

The Benefits of Diversity

More importantly, Vanguard's return to the top spot shows the benefits of providing a diversified line of products that can offer returns in in all types of market conditions, he said. The firm's 11 money market funds are evidence of that, he said. "In December, they took in $1 billion in equity, but took in over $1 billion in money markets because their yields are better than everyone else's and they always have been, but now things are a little different," Wiener said.

Still, throughout the bull market of the '90s, Vanguard was the industry's sales leader for four consecutive years, matching a run that Fidelity had from 1991 to 1995. Despite the firm's reputation for specializing in bond, fixed-income and money market products, the firm's other specialty, index funds, offered strong returns that appealed to growth investors, said Dennis Dolego, director of research for the Optima Group.

Bull-Riding Index Style

In the last decade, a lot of firms sought to capture new assets by adding growth products or acquiring other managers, but Vanguard relied on its index funds to generate that interest, he said. "They've offered a diversified fund line but not one that would have as strong a growth fund focus as a Strong or an AIM," he said. Rather than adding growth funds during a bull market and value funds during a bear market, Vanguard's approach is somewhat unusual, he said. "They've done it differently. Vanguard started more conservatively with index funds and touted them as the most cost-effective way to invest in equities," Dolego said.

However, the ability to succeed through all market conditions is possible only for the heavyweights of the industry that can afford to offer a full line of products, Wiener said. "The mutual fund business has become a business of two complexes: Vanguard and Fidelity," he said. Both firms' scale allow them to undercut most other complexes on cost and also build brands that are recognized by all investors, he said.

Since the markets turned bearish, Vanguard's brand and cost-consciousness has had even greater appeal for investors, said Kristin Adamonis, a research analyst with FRC. And as the markets have shifted, so too have the flows into its funds, she said. For instance, the top two leading funds for the complex last year were its Total Bond Index fund, which garnered $4.9 billion and its GNMA fund, which brought in $4.2 billion. The firms other top 10 sellers last year included three blend funds and five bond funds. Compare that to 2000 when Vanguard's top 10 funds included six blend funds, two growth funds, a specialty fund and a bond fund.

Vanguard was also able to weather the market turbulence better than most thanks to its large presence in the 401(k) market, Dolego said. Those assets are better insulated from market fluctuations than retail assets, he said.

Also, much of the new asset flow into the company came from former growth investors looking for shelter, said Tracy Webb, an analyst with Weiss Ratings. "This shows how fickle investors are," she said.

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