(Adds fund managers up for Morningstar award.)
BOSTON (TheStreet) -- Bill Miller, Bruce Berkowitz and Kenneth Heebner are among legendary mutual fund managers who have trailed their benchmarks by wide margins this year, hurt by a no-show economic recovery, a financial-industry rout and record volatility.
A total of 72% out of 261 large-cap core funds are underperforming their indices, according to Goldman Sachs(GS). For the 110 large-cap value funds, it's 62%; and among 216 large-cap growth funds, it's a stunning 84%. This at a time when the benchmark for most of them, the S&P500 Index, is little changed in 2011.
There are so many mutual funds that have performed horribly that many investors have to be asking, "Why pay a fee for this?" Especially when an index fund or an exchange traded fund does much better for less. Even some investment bank analysts have fared better.
Some investors, alas, are fed up. They pulled $55 billion from domestic large-cap core equity funds from the beginning of the year through Nov. 21, equal to 7.8% of their assets, S&P Capital IQ reports. Goldman Sachs predicts there will be $125 billion of retail equity funds redemptions in 2012, while exchange traded funds will see $100 billion in new purchases.
The Investment Company Institute, which is funded by the the mutual fund industry, reports that stock mutual funds have seen outflows of $84 billion this year through October, versus $37 billion last year in the same period, numbers that include new sales, redemptions and exchanges. That includes data from 4,577 such funds. There was $20 billion in net outflows in October alone.
Morningstar analyst Kevin McDevitt reported that November's fund flows continue to indicate that investors are seeking safety and are avoiding risk above all else, which resulted in outflows out of both U.S. stock funds and international stock funds and inflows for taxable bond funds, municipal bond funds, and money market funds despite their historically low yields during the month, continung a trend.
Even a few wily veterans, who were at the top of the rankings a decade ago, have been outfoxed by the current market environment and are each at the very bottom of the list in their fund categories.
Miller, who has been managing the $921 million Legg Mason Capital Management Opportunity Fund(LMOPX) since 1999, has seen his mid-cap value fund tumble 36% this year.
Heebner's $1.8 billion CGM Focus Fund(CGMFX) has plummeted 28% this year, hurt by owning the airlines Delta(DAL) and United Continental(UAL). Delta has fallen 37% this year, and United is down 18%. Heebner, who's managed the fund since 1997, is known for having years in which the fund has rocketed more than 50% on outsized bets on targeted industries such as commodities or technology.
The $7.5 billion Calamos Growth Fund(CGRRX), run by a large team including family members John P. Calamos Sr., John P. Calamos Jr. and Nick P. Calamos for 21 years, has dropped 11% this year. Like other large, known funds, the performance is better over a longer period, particularly 10 years.
Still, some well-known fund managers are getting kudos from research firms. Bill Nygren of the Oakmark Select(OAKLX) and Oakmark(OAKMX) funds, and Donald and Stephen Yacktman of the Yacktman(YACKX) and Yacktman Focused(YAFFX) funds are among a handful of professional investors up for Morningstar's domestic-stock manager of 2011 award.
Here are six other U.S. equity mutual funds, each with over $2 billion in assets, that have sunk to the bottom rungs of the performance ladder in their fund category in 2011:
Federated Kaufmann(KAUAX)Fund profile: It has been managed by Lawrence Auriana and Hans Utsch since its inception in 1986. They invest primarily in small- and mid-cap growth stocks, with a preference for industry leaders with easy-to-understand business models.
Performance: down 14%, putting it in the 95th percentile in its mid-cap growth category, 10 percentage points worse than the category average.
Assets: $5.5 billion
Worst picks: Express Scripts(ESRX), down 16%; Expediters International of Washington(EXPD), down 24%; and Cummins(CMI), down 15%.
Lord Abbett Affiliated(LAFFX)Fund profile: Dan Frascarelli took over as manager in mid-2009, so he hasn't been at the helm long. "The fund owns more cyclical, economically sensitive firms with slightly more debt and higher valuations than its typical peer," Morningstar said.
Performance: down 9.8%, putting it in the 93rd percentile among large value funds and 6.8 percentage points below its category average.
Assets: $7 billion
Worst picks: Wells Fargo(WFC), down 14%; JPMorgan Chase(JPM), down 23%; and Goldman Sachs(GS), down 41%.
Fidelity Dividend Growth(FDGKX)Fund profile: The fund has been prominent in Fidelity's stable and should do well given the emphasis on dividend-paying stocks in the current investment environment. But this year the large-blend category has struggled mightily. Its 536-stock portfolio has been managed by Lawrence Rakers since September 2008. Morningstar says returns have been volatile, "but it's a fine fund for a patient investor."
Performance: down 10.7%, putting it in the 94th percentile versus its large-blend category peers and 7 percentage points below their average return. But over three years it has an admirable 19.8% annual average return.
Assets: $8.5 billion
Worst picks: Citigroup(C), its second-largest holding, down 43%; Wells Fargo(WFC), down 14%; JPMorgan Chase(JPM), down 24%.
Goldman Sachs Large Cap Value(GSVCX)Fund profile: The fund's lead managers, Andrew Braun and Sean Gallagher, focus on large-cap firms with healthy free cash flow as well as strong and improving balance sheets. The fund has been overweight financials this year, including Bank of America(BAC).
Performance: down 11.7%, putting it in the 96th percentile in the large-value category, 7.9 percentage points below its peers' average return.
Assets: $2 billion
Worst picks: JPMorgan Chase(JPM), 4% of the fund, down 24%; Prudential Financial(PRU), down 6%; Teva Pharmaceutical(TEVA), down 20%.
Fairholme(FAIRX)Fund profile: Managed by Bruce Berkowitz, the fund is known for its concentrated bets as it holds only 19 stocks. It has a 76% sector bet on financials. Its poor performance has resulted in a 55% decline in its asset base this year.
Performance: down 30.6%, dead last in the large-value category, with a return that is 27 percentage points below the category average. Over three years it has an average annual return of 8.4%.
Assets: $8 billion
Worst picks: American International Group(AIG), the largest holding at 22% of the fund, down 53%; Sears Holdings(SHLD), 8% of fund, down 27%; Citigroup(C), 5% of the fund, down 43%.
Janus Overseas(JDIAX)Fund profile: Manager Brent Lynn has a reputation as a risk taker and is willing to bet on stocks of any market value and in any market worldwide, giving the portfolio a mix of foreign and domestic stocks. But this year most of those wagers have turned against him. He took sole control of the fund in June 2003.
Performance: down 32%, putting it in the 98th percentile in its foreign large-growth category, 18 percentage points worse than its category average. Over the past three years it has an average annual return of 14%.
Assets: $8.8 billion
Worst picks: Li & Fung(Hong Kong Exchange), 8% of the fund, down 32%; Ford(F), 4% of the fund, down 37%; Delta Air Lines(DAL), 4% of the fund, down 37%.
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