Vanguard Group said customers had invested $130.4 billion in its mutual and exchange-traded funds during the first 11 months of 2012, beating the fund industry's previous annual inflow record.
The flows into Vanguard funds, mostly into equities, exceeded the previous annual record of $129.6 billion set by JPMorgan Chase & Co in 2008, according to fund research firm Strategic Insight. Vanguard's previous high was $104 billion, achieved in 2007, Vanguard said in a statement on Wednesday.
Investors and financial advisers have favored low-priced, passively managed index funds in 2012, playing to Vanguard's historic strengths. The trend has also benefited BlackRock Inc's iShares ETF unit, while hurting more traditional managers like American Funds, Dodge & Cox and Janus Capital Group Inc.
Vanguard's success is also due to its efforts to offer more products catering to self-directed retail investors, particularly ETFs, said Avi Nachmany, research director of Strategic Insight in New York.
"In the last few years, Vanguard has established a broader footprint," he said. "They have become a participant in virtually every part of the investment landscape."
Inflows remain "strong" in December, Vanguard spokesman John Woerth said. He declined to give a dollar total for the month.
Contrary to much of the fund industry, Vanguard said the majority of the flows, $72.3 billion, went into stock funds. Another $54.4 billion went to bond funds and $6.3 billion into balanced funds.
"Investors have flocked to low-cost index funds when investing in equities and we can see Vanguard provided both," said Tom Roseen, head of research services at Lipper, a unit of Thomson Reuters. Vanguard's actively managed stock funds actually had net customer withdrawals, Roseen noted.
Customers withdrew a net $2.5 billion from money market funds, Vanguard said. JPMorgan's 2008 record was fed largely by investors seeking the safety of money market funds.
Vanguard might have had even greater customer inflows - at least in the short term - if not for its decision to change benchmark indexes for some of its largest ETFs. In October, Vanguard said it was switching 22 funds away from benchmarks provided by MSCI Inc to cut costs.
As a result of the change, some institutional investors that were required to use funds tracking MSCI benchmarks had to switch to competitors, said Dave Nadig, director of research at ETF information firm IndexUniverse.
For example, investors pulled a net $900 million in November from the Vanguard MSCI Emerging Markets ETF, which is shifting to an index created by FTSE Group, while adding $2.3 billion to BlackRock's iShares MSCI Emerging Markets Index, according to data from Morningstar.
"The switch definitely slowed down or reversed their ETF flows in those products," Nadig said. Still, setting a new inflow record "is an enormous achievement and a vindication of Vanguard's core value proposition," he said.
Vanguard, based in Valley Forge, Pennsylvania, had total assets under management of $1.95 trillion at the end of November and is the largest U.S. mutual fund manager and third-largest ETF manager.
(Reporting by Aaron Pressman and Ross Kerber; Editing by Gerald E. McCormick, Lisa Von Ahn and Nick Zieminski)