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April 18, 2011 01:00 AM

Special report: Mutual funds most used by DC plans

Top 25 managers show solid 17% increase from 2009 on strength of equities, bonds

Douglas Appell
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    Tim Pollard and Matthew Wurtzel
    body,td,th { font-family: sans-serif; font-size: 10px;} PIMCO Total Return PTTRX Assets ($mill) $91,112 Fund Manager Pictured Bill Gross Inception Date 5/11/1987 Benchmark Barclays Capital U.S. Aggregate   1 year 3 year 5 year 10 year Inception FUND RETURNS 8.83% 9.10% 8.05% 7.33% 8.45% BENCHMARK RETURNS 6.54% 5.90% 5.80% 5.84% 7.31% Source: P&I
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    Tim Pollard and Matthew Wurtzel
    body,td,th { font-family: sans-serif; font-size: 10px;} American Funds EuroPacific Growth AEPGX Assets ($mill) $58,215 Fund Manager Pictured Stephen E. Bepler Inception Date 4/16/1984 Benchmark MSCI All Country World ex US   1 year 3 year 5 year 10 year Inception FUND RETURNS 9.40% -3.27% 5.58% 6.73% 12.18% BENCHMARK RETURNS 11.60% -4.58% 5.29% 5.97% 10.33% Source: P&I
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    Tim Pollard and Matthew Wurtzel
    body,td,th { font-family: sans-serif; font-size: 10px;} Vanguard Wellington-Inv. VWELX Assets ($mill) $15,748 Fund Manager Pictured Edward P. Bousa Inception Date 7/1/1929 Benchmark Custom   1 year 3 year 5 year 10 year Inception FUND RETURNS 10.94% 1.75% 5.58% 6.20% 8.18% BENCHMARK RETURNS 12.97% 0.65% 3.74% 3.39% NA Source: P&I
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    Tim Pollard and Matthew Wurtzel
    body,td,th { font-family: sans-serif; font-size: 10px;} Fidelity Freedom 2020 FFFDX Assets ($mill) $20,828 Fund Manager Pictured NA Inception Date 10/17/1996 Benchmark S&P 500   1 year 3 year 5 year 10 year Inception FUND RETURNS 12.93% -0.41% 3.65% 3.31% 6.85% BENCHMARK RETURNS 15.06% -2.86% 2.29% 1.41% NA Source: P&I
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    Bloomberg

    The 25 money managers with the most defined contribution mutual fund assets reported a combined total of $1.606 trillion as of Dec. 31, 2010, up 17% from the year before, according to Pensions & Investments' annual survey.

    It was the second year in a row of solid gains, following a 28% rebound in 2009 from the 27% plunge the year before.

    Healthy returns for both equity and fixed-income markets facilitated that growth. For 2010, the Standard & Poor's 500 index rose 15.06%, while the broader Russell 3000 index delivered a 16.93% return. The Morgan Stanley Capital International All Country World Index, meanwhile, rose 13.31%. The Barclays Capital Aggregate index rose 6.54%.

    The rankings of the seven managers with the most DC-related mutual fund assets under management remained unchanged from 2009, despite a wide disparity in growth rates for those firms.

    Fidelity Investments, The Vanguard Group Inc. and Capital Research & Management Co. retained the top three spots, although only Vanguard managed to exceed the 17% combined gain for the top 25.

    Vanguard's DC-related mutual fund assets jumped 19% from the year before to $320.7 billion, almost double market leader Fidelity's 10% gain to $433.8 billion. Capital Research, meanwhile, posted a 7.5% advance to $232.2 billion.

    In fourth place, Pacific Investment Management Co. LLC enjoyed a surge in assets of 39% — or $30 billion — to $107.3 billion. However, roughly half of that gain was attributable to PIMCO's inclusion, for the first time, of A, C, D and R share class assets in its DC plan totals. Had those share classes been included for 2009, PIMCO's assets would have registered a 20% gain in 2010.

    In fifth-to-seventh place, T. Rowe Price Group Inc.'s DC-related mutual fund assets rose 20% to $88.6 billion; followed by a 23% gain for Hartford Financial to $59.2 billion and an 11% rise for BlackRock Inc. to $37.7 billion.

    A 10% increase in assets to $32.3 billion helped Wells Fargo claim eighth place from money market heavyweight Federated Investors Inc., which slipped to ninth with a 0.2% decline in assets to $30.88 billion.

    Columbia Management, which didn't provide numbers for P&I's 2009 survey, came in 10th with $24.8 billion in DC-related mutual fund assets, displacing OppenheimerFunds, even as that firm posted a 19% gain to $24.2 billion.

    Interest in target-date funds

    Executives with managers enjoying relatively strong growth in 2010 cited solid market gains and continued interest in target-date funds as contributing factors.

    Growing interest in passive offerings — especially index target-date funds — continued to power gains for Malvern, Pa.-based Vanguard in 2010, with growth for both the firm's full service and defined contribution investment only businesses, said Barbara Fallon-Walsh, a principal with Vanguard's institutional retirement plan services business.

    Kevin Collins, a vice president and head of client service for T. Rowe Price Retirement Plan Services in Baltimore, said strong market gains coupled with organic growth — especially fueled by interest in T. Rowe's target-date product offerings — contributed to his firm's 20% rise in DC mutual fund assets last year.

    By the end of 2010, T. Rowe's target-date funds accounted for 39% of the firm's total DC mutual fund assets, up from 36% at the end of 2009.

    Net gains for Fidelity's Freedom target-date retirement series, meanwhile, came to $21.5 billion in 2010, or more than half of the firm's $40 billion gain in DC-related mutual fund assets for the year. Plan sponsors “continue to include the entire Freedom Fund lineup in their plans,” and their ranks grew in 2010, with Fidelity adding more than 400 new sponsors with a combined 786,000 participants, wrote Chuck Black, Boston-based senior vice president, investment consulting, with Fidelity Investments, in an e-mail.

    P&I's survey data showed assets in the top 25 target-date offerings surging 35% from 2009 to $156.6 billion, or just over twice the pace of growth for overall assets.

    Those gains left target-date funds accounting for a 12% chunk of overall DC portfolios, up 1.7 percentage points from the year before. Among other gainers, domestic equity rose four-tenths of a percentage point to 43.8%, while domestic bonds added seven-tenths of a point to 14.7%.

    At the other end of the spectrum, money market funds claimed a 7.3% share of DC assets, down 1.9 percentage points. International and global equities dropped six-tenths of a point to 13.4%, while balanced/ asset allocation funds dipped three-tenths of a point to 8.8%.

    PIMCO leads bond funds

    If target-date funds remained the rising stars of the DC universe, PIMCO's Total Return bond fund cemented its stature as the king of the hill among individual funds, surging 22% from the year before — after adjusting the prior year's figure to include A, C, D and R share class assets — to $91.1 billion.

    PIMCO's 20% overall gains, meanwhile, were achieved without the benefit of a target-date fund series that could boast a three-year track record in 2010. The company was able to benefit in 2010 from growing plan sponsor demand for strategies offering a hedge against inflation, with strong flows into offerings such as PIMCO's Real Return fund and Commodity Real Return fund over the past year, noted Stacy Schaus, a senior vice president and leader of Newport Beach, Calif-based PIMCO's DC practice.

    With a three-year track record as of March 11, 2011, PIMCO's target-date series should attract growing interest, Ms. Schaus predicted, citing its relatively conservative structure, with both inflation hedging and tail risk protection. And even on a DCIO basis, the company has benefited until now from target-date demand, with PIMCO's products frequently selected as offerings in custom target-date plans — which account for more than 20% of the total, she said.

    On the domestic equity side, Capital Research's American Funds Growth remained a category killer, up 7.4% at $67.6 billion, followed up by the Fidelity Contrafund, up 18.7% at $44.7 billion, and the Vanguard Institutional Index fund, whose 33.4% gain to $23.7 billion lifted it to third from fifth place the year before.

    Among the top 10 domestic equity funds, only Fidelity's Magellan fund lost assets, with a 15% decline to $10.6 billion dropping Magellan one spot to 10th place.

    If the DC mutual fund rankings have proven fairly stable in recent years, some competitors predict more change could be on the horizon.

    In an interview, Chip Castille, a managing director and head of BlackRock's U.S. and Canada defined contribution business, said mutual funds currently account for roughly one-tenth of his firm's DC business, but BlackRock is gearing up to compete more fiercely for the more than $1 trillion segment of the market looking for mutual fund offerings.

    BlackRock is investing aggressively in the business, and early results have been “very promising,” said Mr. Castille, noting that the firm's DC mutual fund assets as of Feb. 28 stood at $41.9 billion — essentially matching the prior year's $4 billion gain in the first two months of 2011.

    Last month, BlackRock filed with the Securities and Exchange Commission to bring out mutual fund versions of the firm's LifePath target-date retirement fund series.

    Related Articles
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    Table: Target-date mutual funds most used by DC plans
    Table: Balanced/asset allocation mutual funds most used by DC plans
    Table: International/global equity mutual funds most used by DC plans
    Table: Domestic fixed-income mutual funds most used by DC plans
    Table: Domestic equity mutual funds most used by DC plans
    Graphic: Average allocation of DC assets in mutual funds
    Attention defined contribution participants: Beware of being the patsy!
    Top mutual funds most used by DC plans
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