2001 Review: Big Funds Come Up Big

Big funds are often plodding performers, but they looked downright sleek in this tough year.

The book on giant funds is that their girth makes them slow-footed. After all, a 1% position in a $10 billion fund adds up to $100 million, and it takes days, rather than hours, to build or unwind positions that big. Imagine Dom DeLuise in a 40-yard dash and you get the picture!

Because of their size, huge funds typically spread their mountainous assets among a long list of stocks. That diversification typically earns them a "closet-index" tag as they rise and fall in modest cycles with the market. But that's not a bad thing in a year like this, when many more nimble funds' big bets on individual stocks and sectors led to big losses.

As part of our look at how funds performed this year, today the Big Screen zeroes in on the nation's 10 biggest funds. Nine of these have beaten their average peer since Jan. 1, and all of them are doing so over the past three years. The upshot for investors is that this diversified approach isn't necessarily a cop-out and some big fund companies, American Funds in particular, do prove their mettle when times get tough.

Oh, They're Big All Right

How big are these funds? The average mutual fund has $300 million in assets and these 10 funds have, on average, $42.6 billion in their coffers. Here they are, ranked by their returns so far this year.

Related Stories

Bonds Still Socking Stocks, but Don't Bet on a Repeat

2001 Review: Charting a Tempest-Tossed Year

10 Questions With Amerindo Tech Manager Matthew Fitzmaurice

Let's start at the top.

It's fitting that the $50.2 billion PTTAXPimco Total Return fund, an intermediate-term bond fund run by guru William Gross, tops this list. Bond funds are about to top stock funds for the second straight year, and this broker-sold fund beats 88% of its peers over the past three years. You can also get Gross' expertise with lower expenses and a smaller asset base with the FBDFXFremont Bond fund, where he's trounced his peers since taking the reins in 1994.

The trend that springs to mind as we look at this list is that the folks at American Funds have held up well in a tough year. The Los Angeles firm sells its funds through advisers, so they don't do much mainstream advertising. But they are quietly the nation's largest fund shop, with more than $300 billion in stock- and bond-fund assets. You won't see their managers on TV, and their funds, like AWSHXWashington Mutual and the AIVSXInvestment Company of America, don't even have their brand in their name, but they deserve a look.

Big Is Beautiful By and large, the largest funds have sprinted by their peers
Fund	YTD Return	Percentile Rank vs. Peers (1=Best, 100=Worst)	Three-Year Return	Percentile Rank vs. Peers (1=Best, 100=Worst)
PTTAXPIMCO Total Return	8.4%	8%	6.6%	4%
AWSHXWashington Mutual	0.3	12	4.4	34
AIVSXInvestment Company of America	-5.2	37	6	23
ANWPXNew Perspectives	-8.9	13	7.1	21
FGRIXFidelity Growth & Income	-10	15	0.4	43
AGTHXGrowth Fund of America	-11.9	8	13.4	2
FMAGXFidelity Magellan	-12.4	32	1.4	33
VFINXVanguard 500 Index	-12.5	34	-0.1	49
AEPGXEuroPacific Growth	-13	8	4.9	14
FCNTXFidelity Contrafund	-14	56	2.1	26
S&P 500	-12.4	N/A	3.7	N/A
Source: Morningstar. Returns through Dec. 18.

While the firm's funds have different strategies, each is run by a team of managers. Typically, they divide a fund's assets and spread their bets among many companies they think are trading at an attractive stock price relative to their future earnings or cash-flow growth.

The conservative strategy keeps their funds from topping one-year scorecards, but it also keeps them off bottom-ten lists too. And over time, they've shown that a consistent outperformance is the way to top charts over longer time periods.

The $49 billion Washington Mutual fund and the $56.7 billion Investment Company of America, both large-cap value funds, beat their average peer and the S&P 500 over the past one, three, five and 10 years, according to Chicago research house Morningstar. In a lousy environment for growth funds, the $36.5 billion AGTHXGrowth Fund of America is down 12% this year, but it tops more than 80% of its competitors over the past one, three, five and 10 years.

American's $25.7 billion ANWPXNew Perspectives fund, a global portfolio, and its $29.3 billion AEPGXEuroPacific Growth fund, a foreign stock portfolio, have beaten the vast majority of their peers this year and over the past 10 years too.

Two Words: Sixty Forty

The rest of the funds on this list belong to the large-cap blend category, meaning they focus on a wide range of costly and cheap big-cap stocks. This pack includes the nation's two biggest funds, the $86 billion VFINXVanguard 500 Index fund and the $78.9 billion FMAGXFidelity Magellan fund. The others are Fidelity's $31.8 billion FCMTXContrafund and its $34.2 billion FGRIXGrowth & Income fund.

While these portfolios can have slight growth bents, like Magellan, or slight value bents, like Contrafund, they tend to look and perform much like the S&P 500 Index, which is tracked by the Vanguard 500 Index fund, and beat their more aggressive peers over time. This year their returns range from a 10% loss to a 14% loss, right around the index's 12.4% dip, and all but Contrafund are beating their average peer.

If one reason for these giants' success is their diversified, somewhat vanilla approaches, another is that funds tend to fall from this list if their style falls from favor. Over the past two years, we've seen the elimination of growth funds that rode tech-heavy portfolios to big gains in 1999 and big losses since then. When the tech-laden Nasdaq Composite peaked in March last year, the JAVLXJanus Twenty, JANSXJanus, JAWWXJanus Worldwide and TWCUXAmerican Century Ultra funds were on this list.

Slipping These four funds slipped from the biggest-ten list since the Nasdaq's peak last year
Fund	YTD Return	Percentile Rank vs. Peers (1=Best, 100=Worst)	Three-Year Return	Percentile Rank vs. Peers (1=Best, 100=Worst)
JAVLXJanus Twenty*	-28.8%	76%	-5.2%	77%
JANSXJanus*	-25.5	63	0.1	42
JAWWXJanus Worldwide*	-24.6	73	2.4	40
TWCUXAmerican Century Ultra	-15.9	21	0.5	37
S&P 500	-12.4	N/A	3.7	N/A
Source: Morningstar. Returns through Dec. 18. *Closed to new investors.

The quartet of big-cap growth funds have fallen some 24% on average this year, nearly doubling the S&P 500's tumble. Thanks to performance, shareholder redemptions and, in the Janus funds' case, closure to new investors, these funds' assets shriveled.

The bottom line for investors is that you don't have to own one of these mammoth funds, but they do prove the value of diversification. It might not be exciting, but it makes sense if you're an investor and not a thrill-seeker.