Quarterly Funds Review: Big Funds, They Don't Cry-Yi-Yi

Any weekend sailor will tell you a tanker has a better shot of staying afloat during a monsoon than a dinghy. The same idea was borne out in the mutual fund world during the third quarter.

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Quarterly Funds Review: Big Funds, They Don't Cry-Yi-Yi

It would be an understatement to say stock-fund managers are hurting. The average U.S. stock fund fell about 17% in the third quarter alone and trails both bond funds and three-month certificates of deposit over the past one and three years, according to Chicago fund-tracker Morningstar. Over the past 12 months, stock funds are down some 27%. That's worse than any calendar-year loss dating back to 1970.

The silver lining: The biggest funds, in which millions of investors have stashed billions of dollars, have taken on water -- but they haven't sunk. The situation underscores the value of all-weather money managers like American Funds and flies in the face of the idea that all big funds have the sleekness and appeal of a 280-pound plumber climbing a flight of stairs.

Over the past 90 days, only four of the nation's 15 largest mutual funds have fallen further than their average peer. And over the past three mercurial years, all 15 of these mammoth funds, home to more than $600 billion, topped their average competitor.

Let's check these hulks out.

Large and in Charge The biggest funds are beating their peers over the past three years
Fund	Q3 Return	Rank vs. Peers(1=Best, 100=Worst)	3-Year Return	Rank vs. Peers(1=Best, 100=Worst)
(FMAGX)Fidelity Magellan*	-17.7%	64%	2.3%	22%
(VFINX)Vanguard 500 Index	-16.7	39	0.2	45
(AIVSX)Investment Company of America	-12.3	25	6.1	21
(AWSHX)Washington Mutual	-9.8	9	4.3	32
(AGTHX)Growth Fund of America	-20	38	12.3	1
(PTTRX)PIMCO Total Return	4.2	1	7	3
(FCNTX)Fidelity Contrafund	-12.3	3	3.4	17
(ANWPX)New Perspectives	-16.8	33	7.4	19
(AEPGX)EuroPacific Growth	-16.2	15	6	11
(JANSX)Janus*	-26.5	87	0	40
(TWCUX)American Century Ultra	-19.1	29	-0.2	42
(VWNFX)Vanguard Windsor II	-12.4	26	3.5	38
(JAWWX)Janus Worldwide*	-23.2	88	2.5	41
(VWELX)Vanguard Wellington	-7.7	33	5.3	20
(FDGRX)Fidelity Growth Company	-24.4	76	6	9
Avg. U.S. Stock Fund	-7.1	N/A	3.3	N/A
S&P 500	-16.7	N/A	0.2	N/A
Source: Morningstar. Returns through Sept. 25. *Currently closed to new investors.

Given the inclement weather on Wall Street, it's not surprising that this lineup's best third-quarter performer is its only bond offering, the $47 billion (PTTAX)Pimco Total Return fund. With guru Bill Gross at the helm, the only fund manager to win Morningstar's Manager of the Year award twice, it's not surprising that the fund is in the black, topping more than 95% of its peers in the third quarter and over the past three years.

Given that precious few stock funds are even close to the black over the past year, it's also no surprise that this is the nation's top-selling fund this year, with more than $6 billion in net inflows through the end of last month.

As you might imagine, the stock funds on our list focus on big-caps with a range of styles.

Large-cap blend funds are designed to be core stock holdings focusing on the stocks of big companies, with a mix of cheap value stocks and pricier growth fare. Its representatives are the country's two biggest funds: the $78.8 billion (FMAGX)Fidelity Magellan fund, run by Bob Stansky since 1996, and the $77.6 billion (VFINX)Vanguard 500 Index, which tracks the S&P 500. Each has stayed ahead of its average peer over the past three years, but Stansky posted an 18% fall in the third quarter that trailed most of his competitors.

Who's Winning

When we turn our attention to big-cap growth and value funds, we see that American Funds' reputation as a solid manager of core large-cap funds is well-deserved.

The quiet Los Angeles firm sells funds through advisers, shuns advertising and runs five funds on our list, including the large-cap value (AIVSX)Investment Company of America and (AWSHX)Washington Mutual funds, which have about $100 billion in their combined coffers.

Each is team-managed, like all the firm's funds, and both top their average peer and the S&P 500 over the past one, three, five and 10 years. They did the same in the third quarter.

Even more impressive is the waterproof returns rung up by the firm's $34 billion (AGTHX)Growth Fund of America, which topped its average peer in both the heady days of 1999 and the blue period since. The fund beats its average peer over the past one, three, five and 10 years.

The (ANWPX)New Perspectives and (AEPGX)EuroPacific Growth funds, home to a combined $56 billion, show the firm's acuity at managing global and foreign portfolios, too. Both top at least 70% of their peers over the past one, three, five and 10 years.

Other Junk

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"If you're looking for a core stock fund, you can't go wrong with any of the American funds," says Scott Cooley, a senior fund analyst with Morningstar. "From Washington Mutual to Growth Fund of America, I don't think there's a bad large-cap fund in that organization."

Elsewhere

Of course, there are other solid funds on our list as well. The no-load, $25 billion (VWNFX)Vanguard Windsor II, a large-cap value fund, beats 60% of its peers and the S&P 500 over the past one, three, five and 10 years. Among growth funds on our list, the no-load, $29 billion (TWCUX)American Century Ultra fund and the $33 billion (FCNTX)Fidelity Contrafund, which carries a maximum 3% sales charge, also top their average peer over the past one, three, five and 10 years.

Some, however, are a bit less shiny. Thanks to outsize tech bets, the no-load, $22 billion (FDGRX)Fidelity Growth Company fund and the shuttered $28 billion (JANSX)Janus fund both have lost about half of their value over the past 12 months. That trails the average large-cap growth fund and lags the S&P 500 by some 20 percentage points. The Janus fund now trails the S&P 500 over the past one, three, five and 10 years.

The $23 billion (JAWWX)Janus Worldwide fund, also closed to new investors, suffers from the same tech fever. The fund's 43% fall over the past 12 months trails more than three-quarters of its global-fund peers. If things don't turn around fast, this will be the second-straight calendar year in which the once-sizzling fund trails its category average.

Still, all three of these funds are beating their peers over the past three, five and 10 years. And all told, these 15 hulks appear to be earning their money a bit more than their slimmer, more nimble competitors. The bottom line is that being fast isn't looking as important as heading in the right direction.

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