Second-Quarter Fund Roundup: Big Is Beautiful
Mutual funds with mammoth assets are as sleek as skin divers with beer bellies, but the fund world's biggest giants are looking downright lithe these days.
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With a week left in the second quarter, each of the fund world's 15 biggest citizens -- home to nearly $640 billion in assets -- are in the black over the past 90 days and two-thirds are beating their average peers. Even more impressive, all 15 equal or beat the
S&P 500
and their average peers over the past three years, according to fund-tracker
Morningstar
.
The bottom line is that the giant funds -- which pundits and observers lambast as too flabby to react quickly to market shifts -- are doing their job as core holdings: Rising a bit more than their peers in good times, or at least falling a bit less than their peers in bad times.
In the second quarter, when nearly every fund category managed to post gains, 10 of the 15 biggest funds beat their average peers, including the biggest stock funds in the nation: The $88.2 billion
(FMAGX) - Get Report
Fidelity Magellan fund, where Bob Stansky has held the closed fund's reins since 1996, and the $80.8 billion
(VFINX) - Get Report
Vanguard 500 Index fund, where long-time manager Gus Sauter tracks the S&P 500 Index.
After weathering the past year's losses
remarkably well, the second quarter was hard on
American Funds
. Three of the five funds the Los Angeles, Calif.-based firm has on this list trailed their average peers. Two were big-cap value funds, the $56.9 billion
(AIVSX) - Get Report
Investment Company of America and the $49.7 billion
(AWSHX) - Get Report
Washington Mutual fund, while the third was a big-cap growth fund, the $37 billion
(AGTHX) - Get Report
Growth Fund of America. The firm's
(AEPGX) - Get Report
EuroPacific Growth fund, a foreign stock fund, and its $30.9 billion
(ANWPX) - Get Report
New Perspective fund, a global fund, both managed to beat their average peers over the past 90 days, according to Morningstar.
The other two giants that trailed their average peers were the tech-heavy (and closed) $35 billion
(JANSX)
Janus fund and the $31.8 billion
(PTTAX) - Get Report
PIMCO Total Return fund, which rose 0.6% over the past 90 days, narrowly trailing the average intermediate-term bond fund's 0.8% gain.
These giant funds' generally solid showing might surprise some because their vast asset bases limit their flexibility; a 5% position in a $30 billion fund adds up to a $1.5 billion stake that can take weeks to build or whittle. Consequently, these funds typically spread their billions among hundreds of securities. For instance, the average U.S. stock fund has about $780 million invested in 144 stocks, according to Morningstar. The Fidelity Magellan fund, by comparison, has $88.2 billion in its coffers and almost 320 stocks in its portfolio.
Due to their breadth, these funds are typically used as core holdings that offer broad exposure, chugging up and down with the market -- hopefully rising a bit more and falling a bit less.
Given that about 23 cents of every buck invested in diversified U.S. stock funds lives in the 14 stock funds on this list, the number of investors holding shares of these funds is high. A look at these funds' longer-term returns should make those folks proud.
Institutional investors typically judge a fund by its longer-term track record, beginning at three years. When we look at these funds' returns over that challenging time frame, which includes a frothy 1999 and sullen 2000, we find that all beat their average peer and at least equal the S&P 500's return.
While all of these funds have outshone their competitors over the past three years, American Funds might best prove its mettle. Its five funds beat at least 70% of their peers over the past three-, five- and 10-year periods, an impressive feat given that the funds on this list cover a range of styles: U.S. growth (Growth Fund of America), U.S. value (Investment Company of America and Washington Mutual), global (New Perspective) and foreign (EuroPacific Growth).
Fidelity also deserves a laurel because its four funds, with large-cap growth and large-cap blend styles, beat their peers over the past three-, five- and 10-year periods.
Before we get too excited, we should keep in mind that these funds
should
be shining in tough times like these. After all, their vast portfolios tend to weather market storms better than smaller funds, some of which used their nimbleness to make big bets on highflying sectors and stocks that have since headed south.
Still, it's good to see these funds perform appropriately, especially because many of the funds on this list are only getting bigger. The PIMCO Total Return fund is this year's top-seller and the Growth Fund of America is second with net in-flows of $4.1 billion and $2.1 billion, respectively, through April 30, the latest figures available from Boston fund consultancy
Financial Research
. The Vanguard 500 Index fund is the 10th-best seller this year with about a billion dollars in net in-flows through the first four months of the year.
These funds have a lot of money in their coffers, and they're proving that they might just deserve it after all.
Fund Junkie runs every Monday and Wednesday, as well as occasional dispatches. Ian McDonald writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to
imcdonald@thestreet.com, but he cannot give specific financial advice.