Vanguard Rides Wave of Index Funds Popularity

Throughout their decades-long rivalry, Fidelity Investments and Vanguard Group have brought markedly different investment philosophies to the mutual fund business.

Fidelity, the biggest firm in the business, tried to beat the market. No. 2 Vanguard tried to ride the market. Fidelity wooed investors with its promise of top-flight research; Vanguard attracted customers with the lowest fees in the business.

In 1998, Vanguard’s approach paid off. Net inflows into Vanguard’s retail stock and bond funds totaled $48.9 billion in 1998, more than four times Fidelity’s total of $11.3 billion, according to figures released by Financial Research Corp. on Monday.

“Vanguard has so many top-selling funds, it goes a long way to showing what a strong brand they have,” said David Haywood, an analyst with Financial Research.

Managing nine of the world’s 25 top-selling funds helped Vanguard break the all-time record of $43 billion set by Fidelity in 1993.

Analysts say 23-year-old Vanguard is riding the crest of the popularity of funds tied to major market indexes, including its Index 500 fund, which seeks to mimic the Standard & Poor’s blue-chip benchmark.