Vanguard is No. 1 in fund inflows

Vanguard Group Inc. took in a net $76.2 billion from mutual fund investors last year, dethroning American Funds, which had held the top spot since 2002.

American Funds, owned by Los Angeles-based Capital Group Cos., posted $74.7 billion in net inflows, largely unchanged from 2006, according to Financial Research Corp. The net inflows at Vanguard were up 77% from last year.

Fidelity Investments, which with $1.5 trillion in assets is the world’s biggest mutual fund company, took in a net $4.3 billion, not enough to put its inflows among the top 10.

Boston-based Financial Research doesn’t include institutional or money market assets in its calculations.

Vanguard, known for its index funds, vaulted over rivals during a year when stock indexes peaked. Because they hold little or no cash, index funds typically outperform actively managed funds in rising markets.

Funds that invest in stocks outside the U.S. attracted $209 billion, almost triple the inflow of U.S. funds, as foreign shares outperformed domestic stocks. The MSCI Emerging Markets index surged 39% last year, and the MSCI EAFE index of developed-market shares rose 12%. The Standard & Poor’s 500 climbed 5.5%, including reinvested dividends.

Vanguard’s bestselling fund last year was the Vanguard Total Stock Market Index fund, which attracted $17 billion. The $96-billion fund tracks the MSCI U.S. Broad Market index, which contains 99.5% of all U.S. stocks. The fund returned 5.5% in 2007.

Vanguard pulled $12.5 billion into its Total Bond Market Index fund, which tracks the Lehman Bros. Aggregate Bond index and returned 9.6% last year.

The bestselling fund of 2007 was State Street Corp.’s SPDR Trust exchange-traded fund, which tracks the S&P; 500 and drew a net $30.7 billion.

American Funds collected a net $14.8 billion in Growth Fund of America, the largest U.S. mutual fund, with $193 billion in assets. The American Capital Income Builder fund took in a net $17.5 billion.

ETFs helped Barclays Global Investors and State Street pull in $58.2 billion and $49.2 billion, respectively, in 2007. Barclays Global is a unit of British bank Barclays.