Heading Back to Index Funds; Vanguard Is Biggest Beneficiary as Investors Seek Diversity After Tech's Dive
After being burned last year by actively managed equity funds focused on technology and the Internet, investors are again pumping money into index funds, seeking broad exposure to the U.S. stock market at the lowest cost.</br></br>"People are less willing to concentrate on specific areas of the market," said Eric Bjorgen, director of research at Leuthold Group, a Minneapolis-based research firm. "They're looking for the diversification an index fund offers."</br></br>Bjorgen said 15 percent of inflows into equity funds this year through May 23 went into stock funds that track broad market indexes such as the Standard & Poor's 500-stock index. That's up from just 4 percent during the same period last year. In the late 1990s, a period when the S&P consistently beat actively managed funds, index funds received about 25 percent of inflows.</br></br>"Because of the devastation in the technology market, mutual fund investors are coming back to some of the traditional, broad-based, old-economy funds," Bjorgen said.</br></br>The biggest beneficiary of the shift has been Vanguard Group, the largest U.S. provider of index funds. Vanguard, the best-selling U.S. mutual fund group this year, raked in $12.71 billion this year through April, more than double that of its nearest competitor, according to Financial Research Corp., a Boston-based consulting firm.