The top 25 managers of mutual funds most used by defined contribution plans ended 2007 with $1.59 trillion in assets — a 13.8% rise that dwarfed the less than 6% gain logged by leading U.S. stock market indexes during the year.
The previous year's 14.6% growth, while higher, had failed to keep pace with the S&P 500 index's 15.8% surge in 2006, suggesting a significant pickup in allocations to defined contribution plans during the latest calendar year.
Executives with leading managers said the Pension Protection Act, the 2006 law that paved the way for automatic enrollment and the use of target-date and lifecycle funds as DC default options, was a major factor driving growth for 2007.
The “big theme” for the past year was the pickup in demand for target-date and lifecycle funds, following passage of the PPA, said Jack Haley, executive vice president of Fidelity Investments' personal and workplace investing division. Fidelity reported a 9.9% rise in DC-related mutual fund assets at year-end 2007, to $482 billion.
Growing use of retirement date funds, automatic enrollment and automatic increase options by DC sponsors helped fuel T. Rowe Price's strong asset growth in funds used by DC plans last year, said John Doyle, director of marketing and communications for T. Rowe Price Retirement Plan Services, Baltimore.
Other executives cited an increase in demand for overseas funds, as well as investment options that offered protection against inflation or volatility.
Fidelity retained its top spot on the list of leading managers, and the next five managers also maintained their rankings: Capital Research & Management Co. in second place, up 20% to $343 billion; Vanguard Group Inc., up 18% to $277.8 billion; T. Rowe Price Group, up 20% at $85.8 billion; Pacific Investment Management Co., up 19% to $43 billion; and BlackRock Inc., up 18% at $40 billion.
Hartford Financial Services Inc. rose two spots to seventh place with an 18% gain to $32.1 billion, displacing OppenheimerFunds Inc., which fell to eighth place, with an 11% gain to $30.9 billion.
Wells Fargo & Co., with a 16% gain to $27 billion, climbed two rungs to ninth place, while Franklin Templeton Investments' 8.2% decline to $25.5 billion left the firm in 10th place, down two steps from the year before. In an e-mailed statement, Franklin Templeton said declining demand for value strategies and decisions by some plans to consolidate their DC and DB managers made 2007 a “challenging” year, but the firm “remains committed to the DC business.”
JPMorgan Retirement Plan Services dropped to 11th place from 10th place in 2006, with a 6.5% decline to $23 billion. Spokeswoman Jacqueline Meere said the fall in assets followed decisions by some DC plan clients to shift assets out of funds managed by affiliate American Century Investment Management Inc.
Executives with leading firms agreed that the ripple effects of the PPA was the top story of 2007.
Fidelity's Mr. Haley said his firm's “Freedom” family of target-date funds saw asset growth of between 20% and 30% in 2007, including a 23% jump for the Fidelity Freedom 2020 fund to $17.3 billion and a 30% surge for the Freedom 2030 fund to $11.8 billion. Freedom funds were the default option for 39% of the more than 16,000 plans Fidelity administered at the end of 2007, up sharply from 17% of more than 14,500 plans the year before, he noted.