10 Worst-Performing Mutual Funds of 2010

BOSTON (TheStreet) -- The 10 worst-performing mutual funds are finding that what worked in 2009 is failing this year.

Banks and health-care companies led the stock market last year. But investors took on more risk as 2010 wore on, encouraged by a rebound in corporate profits, particularly in technology, and the government's economic-stimulus plans.

The top performer among diversified mutual funds that primarily buy large U.S. companies is Morgan Stanley Focus Growth(AMOBX), which has risen 25% this year through Nov. 29. The benchmark S&P 500 Index has climbed 4.8%.

The worst performers have barely eked out gains. Invesco Basic Value(GTVLX) has returned 0.5%, and Janus Twenty(JNTFX) has increased 2.4%.

None of the managers have taken odd or risky positions. They're facing challenges ranging from new management to bad timing on industry bets. Sticking with these funds may require a leap of faith and a bottle of antacids, as they've yo-yo'd over the past three years, losing as much as 52% in 2008, gaining much of it back the following year, then treading water this year.

It didn't take much of a miscue to end up on this list, as just a few clunkers among the top holdings can lead to overall losses. Several managers expected the economy to charge ahead and invested in mega-cap stocks in financial services and computer hardware. But many have been hamstrung from investments in Bank of America(BAC), Cisco(CSCO) and Hewlett-Packard(HPQ), each of which are down about 20% this year.

Such is the case for Janus fund manager Ron Sachs, who is having a trying year. Three of his funds are on the list.

A lesson to be learned from these funds' travails is that successful mutual-fund management is as much about limiting losses as maximizing gains.

This article's rankings are based on data provided by Morningstar and includes mutual funds with $1 billion or more in assets that are the worst performers in the large-capitalization growth, value or blend (growth and value) categories, with less than 30% of assets in small- or mid-cap stocks. Industry- and country-specific funds are excluded.

In inverse order, here are the 10 worst-performing funds, their key holdings and strategy: