The 25 top managers of mutual funds most used by defined contribution plans ended 2006 with a 14.6% gain in assets to $1.4 trillion, according to Pensions & Investments latest survey.
That pace was more than 2005s 13.7% rise. For the latest year, the Russell 3000 returned 15.7%.
Fidelity Investments Inc., Capital Research & Management Co. and Vanguard Group Inc. the top players in the defined contribution marketplace saw their share of the groups total assets rise to 68.4% from 65.6% the year before.
The ranking of the top four firms remained unchanged from 2005.
Capital Research had the strongest gains, with a 29.8% increase in DC-related mutual fund assets to $284.9 billion. Chuck Freadhoff, a spokesman for Los Angeles-based Capital Research, attributed the gain to favorable returns in funds like the American Funds Growth fund. The large-cap domestic growth equity fund was the largest equity mutual fund used by DC plan participants in 2006. Assets surged 32.8% to $73.7 billion from $55.5 billion.
We have seen growth in both the DC area and in retail mutual funds, and we attribute that to our long-term approach, said Mr. Freadhoff. Our funds returned favorably compared to many competitors. Advisers know us and know our reputation for our cautious, risk-averse approach.
Boston-based Fidelity, which accounts for the largest number of funds in the survey, saw its assets grow 15.4% to $438.4 billion.
Double-digit gains in our managed DC plan mutual fund assets in 2006 echoed the strong growth we achieved across our defined contribution business, said Jeffrey R. Carney, president of retirement services. In fact, Fidelity Employer Services Co. (the DC administration arm of Fidelity) ended the year at all-time high levels for assets under administration, retirement plans and DC participants. In 2006, growth was driven by new products and services, high performing funds and superior service.
Fidelitys Magellan Fund, however, continued to decline. The fund headed by portfolio manager Harry W. Lange, who replaced Robert E. Stansky last year finished 2006 at $26 billion, down 13.4% from $30.1 billion in 2005. Magellan dropped one notch to No. 4 on the most-used equity fund list in 2006, behind the American Funds Growth fund, the Fidelity Contrafund, and the Vanguard 500 Index fund.
Fidelity administered 15,467 defined contribution plans by years end, a 10% increase from 2005, Mr. Carney said. The firm took in total net flows of $32.6 billion in 2006, a 25% increase from 2005. The robust asset flows propelled FESCos total administered assets to a year-end level of $851 billion, an 18% increase vs. 2005, Mr. Carney added.
Vanguard ended 2006 in third place in the rankings with $235.5 billion in defined contribution assets, up 16.3% from 2005.
Fidelity, Capital Research and Vanguard dominated the rankings for domestic equity funds, accounting for 25 of the 30 biggest funds by assets under management.
Asset allocation spurt
T. Rowe Price Group Inc., Baltimore, retained the fourth spot among the top 25 managers with $71.5 billion, up 18.5% from $60.4 billion in assets in 2005. Heidi Walsh, vice president and director of strategic marketing, said T. Rowes growth was driven by automatic enrollment and continued interest in target-date funds. T. Rowe Price had four of the top 25 asset allocation/balanced funds for 2006, totaling $8.5 billion in assets.
Pacific Investment Management Co., Newport Beach, Calif., took the fifth spot, up from sixth in 2005, with $36.3 billion in assets. PIMCO grew a whopping 30.5% in the year.
Stacy Schaus, senior vice president and defined contribution practice leader at PIMCO, said increasing reliance on DC plans as the primary savings vehicle spurred the growth.
With a growing number of corporations closing or freezing defined benefit plans and enhancing existing defined contribution plans, Ms. Schaus said that momentum could only increase further.
People are seeing these assets as more important for retirement, she said. Freezing or closing a DB plan has led to an increased emphasis on DC plans.
Plan executives also are paying closer attention to the asset mix within DC plans, she said, and PIMCO sees growth opportunities in other asset classes. While primarily known as a fixed-income powerhouse, PIMCO officials want to extend the firms brand within the DC market.
We want to see growth in not only core bond or stable value, but also in (Treasury inflation-protected securities), real estate, commodities and global fixed income, and high yield use and emerging market debt, said Ms. Schaus.
In sixth place was BlackRock Inc., New York, which reported $28.8 billion in DC assets. BlackRock, which broke into the top 10 for the first time, acquired Merrill Lynch Investment Management in 2006, raising its profile in the DC rankings. Merrill Lynch reported $21.8 billion in 2005, ranking 10th.
OppenheimerFunds, New York, ranked seventh for 2006 with $27.8 billion, a 25.9% increase. OppenheimerFunds was in ninth place in 2005.
In the eighth slot was Franklin Templeton Investments, San Mateo, Calif., with $27.8 billion, an increase of 9.3% from a year earlier.
Hartford Financial Services Inc., Hartford, Conn., and JPMorgan Retirement Plan Services, Kansas City, Mo., rounded out the top 10 with respective assets of $27.3 billion and $24.6 billion.
Wells Fargo & Co., San Francisco, fell to 11th place in 2006 from fifth with $23.2 billion, a 26.4% decline from 2005. The drop is attributable to a different reporting methodology used in 2006 from 2005, not to any loss in assets.
Diversified Investment Advisors Inc., Purchase, N.Y., which ranked seventh in 2005, did not report assets for 2006. Nina Dietrich, spokeswoman, declined to comment.
The average allocation of the defined contribution assets shifted slightly during calendar 2006. Domestic equity assets accounted for 55.8% of the pie, down from 60% a year earlier, and domestic bonds dropped to 7.6%, from 8.3%. International/global equity funds grew to 16.9% from 13.3%; balanced/lifestyle grew to 14.1% from 13.1%; and money market funds grew to 5.6% from 5.3%.
Among the separate rankings of most-used equity funds, American Funds Growth and Fidelity Contrafund retained the top two spots, though there was plenty of movement among the remaining eight managers. Vanguards 500 Index fund moved up one notch to third place, changing places with Fidelitys Magellan; and Fidelitys Spartan U.S. Index fund climbed three places to fifth. American Funds Washington fund remained sixth, while Fidelitys Low Priced fund dropped two spots to seventh place. Rounding out the top 10 were Fidelity Growth Co., American Funds Investment Co. and Vanguards Institutional Index Fund.
Among the most-used fixed-income funds, there was only one change among the top five: American Funds Bond fund moved into second place from third, changing places with Vanguard Total Bond Index fund.
Within the international/global funds ranked, Oppenheimer Global fund moved into fifth spot, as Templeton Foreign fund dropped to eighth from fifth.