Vanguard Gets Record Deposits as Clients Return to Stocks

Vanguard Group Inc., the biggest U.S. mutual-fund firm, attracted a record $24.3 billion from clients in January, mostly into stocks, as signs of an improving U.S. economy have prompted investors to return to equities.

January’s deposits were more than 40 percent greater than the previous monthly record of $16.8 billion, achieved in the same month in 2012, John Woerth, a spokesman for Valley Forge, Pennsylvania-based Vanguard, said in an e-mail. About $20 billion of last month’s total went into stock-oriented mutual funds and exchange-traded products.

Fund investors stepped up their investments in equities as signs of improvement in the U.S. economy sent the the Standard & Poor’s 500 Index up 5 percent in January and pushed the Dow Jones Industrial Average to 14,000 last week for the first time since 2007. Domestic stock funds, which have experienced redemptions for the past six calendar years, won $16.1 billion in the first three weeks of January, according to the Washington-based Investment Company Institute.

“People may have looked at the market’s performance and said, ‘Gee, I am missing out on an opportunity’,” Michael Rawson, a fund analyst for Chicago-based Morningstar Inc. (MORN), said in a telephone interview. “I am not surprised the flows into stocks are strong.”

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Photographer: Spencer Platt/Getty Images

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U.S. mutual funds collected $64.8 billion in net deposits in the first three weeks of January, according to the ICI, on track for the biggest month on record for deposits. The previous record for a full month was $52.6 billion in May 2009, ICI data show. Equity mutual funds gathered $29.9 billion in the three- week period, more than for any full month since 2006.

ETF Deposits

ETFs, which generally track indexes while trading throughout the day like stocks, gathered $31 billion in January, about $29 billion of which went into equity-oriented products, according to research firm IndexUniverse LLC.

Vanguard, which manages $2.07 trillion in U.S. fund assets, is known for its low-cost funds which mimic the performance of indexes. Vanguard’s equity mutual funds charge 11 cents for every $100 invested compared to 78 cents for the industry as a whole, according to data from Denver-based Lipper.

With $246 billion in exchange-traded funds, Vanguard was the third-largest provider of U.S. ETFs as of Dec. 31, behind New York-based Blackrock Inc. (BLK) and Boston-based State Street Corp. (STT), according to data from State Street.

Index Switch

Vanguard, in a bid to cut ETF costs, said in October it would adopt benchmarks from FTSE Group for six international stock index funds and benchmarks developed by the University of Chicago’s Center for Research in Security Prices for 16 U.S. equity and balanced funds.

The decision didn’t hurt the popularity of the firm’s ETFs, said Woerth. Vanguard attracted $10.2 billion in ETF deposits in January, and new money has increased in almost all of the company’s ETFs since the October announcement, he said.

One ETF that has been affected by the switch is the firm’s largest, the $62 billion Vanguard FTSE Emerging Markets ETF. Unlike the competing MSCI Emerging Markets Index, the FTSE product does not track South Korean stocks.

Since Oct. 1 BlackRock’s rival iShares MSCI Emerging Markets Index, which includes Korea, won more than $12 billion in deposits compared to less than $500 million for the Vanguard offering, according to data from San Francisco-based IndexUniverse. In the first nine months of 2012, the Vanguard ETF took in roughly seven times more money than the BlackRock fund.

To contact the reporter on this story: Charles Stein in Boston at cstein4@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cabaumgaertel@bloomberg.net

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