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Wednesday, February 09, 2005

2004's Asset Allocation Winners

Reported by Theresa Sim

According to one estimate, investors continued to choose asset allocation funds in 2004 -- pouring more than two-thirds of all net inflows into stock and bond funds to asset allocation funds.

Vanguard and Fidelity were first and second in bringing in asset allocation-driven money, followed by Pimco, T. Rowe Price, Franklin and Evergreen. Washington Mutual and Russell Investments rounded out the top eight, says Avi Nachmany, director of research at Strategic Insight.

What do these firms have in common? While some fund firms are undoubtedly benefiting from the "halo effect" and success in non-asset allocation areas, Nachmany attributes their success to product distinction. "Among the top ten, virtually each one has some kind of distinctive approach to doing this," says Nachmany.

For instance, Franklin gives investors the ability to buy their best funds in one transaction, while Washington Mutual's more traditional product is sold outside of the bank system, offers daily rebalancing and is also offered in wraps.

Additionally, the demand for this product is being fueled by a combination of factors. For one, investors are becoming less comfortable with risky investing -- in either a single stock or a single fund.

"I think it's also significantly driven by financial advisors and plan-administrators, in essence, those that function as fiduciaries in a world of greater regulatory awareness," says Nachmany. He continues: it's a "greater…persistence by fiduciaries to encourage investors to invest in that fashion…and lesser resistance by investors to act on that message."  

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