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TheStreet Open House

Fund's Returns Show Why 'Buy-and Hold' Isn't Dead

BOSTON ( TheStreet) -- Even before last week's stock-market sell-off -- the biggest losing streak in three years -- large-cap stocks were getting thumped, despite analysts' and money managers' claims they're among the best bets.

But the record tells a different story. The large-cap stock benchmark, the S&P 500 Index, has lost an annual average of 0.2% over the past three years, including 5.9% so far in 2011. Over the past decade, it's up 4%, less than bonds.

In making a case for large-caps, supporters say U.S. multinational companies can take advantage of fast-growing emerging economies to sell their products and services and, as a result, aren't handcuffed by America's slump.

And they're seen as a good bet when inflation strikes because large companies are often leaders in their industry, which means they can raise prices and still keep customers, something smaller competitors can't get away with.

Charles Smith, chief investment officer of Fort Pitt Capital Group, who manages over $1 billion in mostly blue-chip stocks, said "large-caps started off in the worst possible position in terms of valuation in the past decade, so the 10-year numbers look pretty bad."

That's because of the lingering effects of the widespread technology bust. Going back to 2000, technology giants such as computer network maker Cisco Systems (CSCO), software firm Microsoft (MSFT) and chipmaker Intel (INTC) were selling at 40 to 60 times earnings, and investors expected further gains in their shares, he said.

That proved dead wrong as the stocks soon came crashing down. "When the tech boom ended, so did their outperformance and that set the table for the bad decade" that followed, Smith said.

And it's been rough-and-rocky traveling since then.

Now, Smith says, given their low values and healthy dividends, "large-caps are better positioned now for a rally."

But it's a hard sell as a lot of people are tired of hearing that argument and are clearly looking for greener pastures for their money. Many investors are dumping stocks altogether. Stocks funds worldwide lost $92 billion to redemptions in the three months through August, more than the total amount put into those funds since equities bottomed in 2009, the Wall Street Journal reported today.

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