DFA tops with advisers, but American Funds stirring

Top three fund firms all have sharp focus on investment philosophy

Jul 29, 2013 @ 12:25 pm

By Jason Kephart

For the third time in four years, Dimensional Fund Advisors tops the list of mutual fund companies best positioned to increase its share of assets with financial advisers. Longtime adviser favorite American Funds, meanwhile, is showing signs that it's due for a turnaround.

DFA scored the highest in a survey of 1,700 financial advisers by Cogent Research LLC that asked how likely they are to increase or decrease assets with 24 different mutual fund companies. The Austin, Texas-based mutual fund company, best known for its factor-based investing philosophy and high barriers to entry (for the mutual fund world, at least), scored 25% higher than bond megashop Pacific Investment Management Co. LLC, which came in second. The Vanguard Group Inc., the world's largest mutual fund company, finished third.

(Don't miss: The top 6 mutual fund companies among advisers.)

One thing the top three firms share in common is that they all scored high on investment philosophy satisfaction, something that should not be surprising given how laser-focused each is on its own philosophy, according to Meredith Rice, senior director of research at Cogent.

Dimensional Fund Advisors, for example, believes strongly in not trying to beat the market through individual stock selection but instead tilting toward factors such as company size and valuation to offer better returns. The funds are offered mainly through financial advisers, and to offer the funds, advisers must pass through a training program.

DFA's persistence in message clearly paid off this past June. It was one of the only fund companies to see net inflows into its bond funds for the month, attracting $148 million in net new deposits. To put that in perspective, investors pulled $6.5 billion from Vanguard's bond funds during the month.

Overall, through the first six months of the year, DFA attracted more net new cash than all but Vanguard, Pimco and MFS Investments.

On the other end of the spectrum, long-dominant American Funds is starting to show signs of turning things around with advisers.

“They're still the 800-pound gorilla,” Ms. Rice said. “They've kind of stopped the slippage.”

American Funds, beset by lackluster performance in 2008 and the shift toward fee-based investing, has suffered nearly $300 billion in outflows over the past three years, according to Morningstar Inc.

The company has seen business picking up though. In January, American had its first month of net inflows since May 2009. Even though that momentum hasn't kept up, the $8.9 billion in net outflows through the first six months of the year were far better than the $29 billion that was pulled over the comparable period last year.

Ms. Rice attributes the slowdown to American Funds engineering some changes to its business in response to the outflows.

“They've been launching new separately managed accounts, bolstering the wholesaler team and making some changes to the investment teams,” she said.

American Funds has also been focusing on its 401(k) business. Last year, it began quietlyexpanding the number of nonproprietary funds it offers through its record-keeping service.


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