While defined contribution plans remain as a top distribution channel for mutual funds, only a handful of fund firms have mastered the silo. Indeed, just-released numbers show that just three firms hold a grip on the market.
|Top 10 DC Fund Managers
||DC Assets$ BIL12/31/2006
||Capital Research & Mgmt.
||T. Rowe Price
||JP Morgan RPS
|* No comparison possible due to merger with Merrill Lync Investment Managers
|Source: Pensions & Investments
Those three -- Capital Group's American Funds
-- are the same three that control the top spots across all distribution channels. The Big Three fund firms control $759 billion of the DC industry. Industry sources variously estimate that the total DC plan pie is between $2.5 trillion and $3 trillion in size.
The numbers come from Pensions & Investments
, which releases market share numbers for the largest 25 fund firms each year. This year, the fund triumvirate controlled 68.4 percent of the survey, an increase from 65.6 percent at the end of 2005. The survey numbers are based on year-end 2006 data.
The rankings show that relatively few of the nation's six hundred plus fund firms have managed to find a seat at the defined contribution table. They also reveal that the firms that have succeeded, typically carve out a strong niche. Indeed, the 10 most used funds all come from the triumvirate. The top five are: American Funds Growth fund, Fidelity Contrafund, Vanguard 500 Index fund, Fidelity Magellan and Fidelity Spartan.
The second half of the top 10 include American Funds' Washington fund, Fidelity Low-Priced Stock, Fidelity Growth Company, American Funds Investment Company of America and Vanguard's Institutional Index Fund.
Capital Group Cos. initially built its share by selling investment-only services both directly to large plan sponsors and indirectly through brokers. However, during the past seven years it has added to its lead by dominating the broker- and TPA-sold markets where its "R" Shares have proved a hit with advisors. American Funds carries a broad range of R shares that allow an advisor to select a share class that can provide payment for recordkeepers and advisors that is competitive for a selected niche. As a result, American Funds are widely used across the small plan market and are able to compete with a broad range of products.
American Funds has also gained shelf space on many of the bundled providers platforms that are targeted at advisors. The bundled providers are encouraged to offer the funds because of American Funds' strong reputation in being advisor-focused. The fund firm is unique among the triumverate in that it does not have a proprietary recordkeeping platform and instead refers plan sponsors to partners, including Great-West's Fascore
Meanwhile, number three Vanguard has maintained its share by keeping its funds as the core offerings in its full-service product. Vanguard has been known as a relatively "in-the-box" provider among its peer group in the large plan market.
Where Fidelity's initially rode its Magellan fund to prominence, it has converted its strategy to one of being a technology solutions firm targeted at plan sponsors seeking a no risk solution. Like other bundled providers, it has made sure that its funds remain at the core of most plans. DC assets held in Magellan slipped 13.4 percent in 2006 to $26 billion from $30.1 billion at the end of 2005. That decline reflects the fact that Magellan is no longer open to new plan sponsors and gains cash flows and new participants from only existing plan sponsor clients.
It is asset allocation funds that are driving growth at number four T. Rowe Price
. The Baltimore fund shop had four asset allocation funds with $8.1 billion of assets rank in the top 25 funds within DC assets. T. Rowe, which also offers recordkeeping services, claims more than $70 billion in DC-derived fund assets, remains more than $150 billion behind number three Fidelity.
, which comes in at number five, has a unique niche. While the firm has had a bundled product, the great bulk of its business has come from the Total Return fund managed by bond guru Bill Gross. It has also parlayed its reputation as a bond-trading expert into a leadership position in the stable value market, a niche that continues to account for roughly a sixth of DC plan assets.
While New York-based BlackRock
is also a player in the stable value game, most of its DC fund assets come from its purchase of Merrill Lynch Investment Managers
(MLIM) last year. MLIM brought nearly $22 billion of assets in the door. While known as a broker-sold fund shop, MLIM gained much of its assets in the large plan market, where it counts DuPont and DaimlerChrysler among its clients.
and Franklin Templeton
both have done well placing their international funds with plan sponsors on an investment-only basis. Oppenheimer also offers a semi-bundled product while Franklin Resources has exited the full-service side of the business.
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