The past five tumultuous years have felt like 20 for fund investors. This hectic half-decade has also tested fund companies' mettle, so let's see who stood tall.
Janus Keeps Mellowing Out
10 Questions With Internet Fund Manager Peter Doyle
Big Screen Archive: Solid Funds and How They Fit Together
The main idea behind investing in a stock fund is that you're handing your money over to a well-trained pro who'll prudently invest your money. This week's Big Screen tries to get a sense of which of the 10 biggest fund shops delivered on that promise and which didn't during the past five years, while we saw the
bubble inflate and then pop.
To figure this out, we simply calculated what percentage of each company's U.S. stock funds topped their average peer in the one-, three- and five-year periods ended Dec. 31. It's not a complex approach, but it does show that some of the industry's giants are more likely than others to swing for the fences -- and strike out.
"This exercise shows that the
fund families that tend to avoid extreme sector bets have prospered," says Scott Cooley, a senior fund analyst with Chicago research house Morningstar.
The list of companies that fared well includes
can't say the same.
Fidelity is often criticized for frequently shuffling its fund managers, but the Boston behemoth's deep bench seems to have helped it skirt the damage better than most. The firm began selling its big stakes in sagging tech shares and spreading the money in other sectors sooner than most. As a result, more than 70% of the shop's domestic-stock funds beat their average peer over the past one, three, five and 10 years.
Quiet giant American Funds, the nation's third-largest fund company, with some $330 billion in its stock and bond funds, spreads each fund's assets among a team of managers who tend to take a price-conscious tack. That thoughtful approach usually keeps them away from the market's most speculative fare, and it has paid off in recent years, as illustrated by solid returns of funds such as the
Growth Fund of America vs. its less discerning peers. Though the Los Angeles-based firm offers only 10 domestic-stock funds, nine beat their peers over the past three, five and 10 years.
It's not surprising that Vanguard fared better than most. Most large-cap funds trail benchmarks such as the
, and the firm is known for its index funds. Also, many of its actively managed funds are run by subadvisers who are removed if they take their eye off the ball. Lincoln Capital Management, former manager of the Vanguard U.S. Growth fund, was one of
many growth managers that got pink slips after two lousy years.
All three of these firms' funds tend to carry lower expenses than their peers, and this adds up to a big advantage over time. That said, it's not as if all of these shops avoided an implosion. The
Fidelity Aggressive Growth fund, where Bob Bertelson took the reins two years ago, has fallen far harder than its peers. The fund fell 27% in 2000 and 47% last year, trailing more than 90% of its competitors each year.
But that type of free fall was far more common at companies with more aggressive styles, such as Putnam, AIM Funds and
.Thanks to their willingness to pay higher prices and make bets on the then-highflying tech sector, these firms' funds looked good in 1999. But since then, they've followed those favorites back to earth.
A whopping 70% of Putnam's domestic-stock funds, present in many 401(k) plans, have trailed their average peer over the past one, three or five years. The firm has recently shifted its funds to a team-management style to see if more chefs will lead to better results. For an idea of how big risks can lead to big losses, check out the
Putnam OTC & Emerging Growth fund, which rang up a 127% gain in 1999, but now averages an annual 7% loss over the past five years. (Full disclosure: I own shares of the ravaged fund in an old 401(k) account dating back to a stint working for Putnam in the mid-1990s.)
Both AIM and Janus funds were also willing to pay up for highfliers, but they reined in their funds a bit better than Putnam. A little over half of AIM's U.S. stock funds beat their average peer over the past three years. And despite big recent losses, at least 75% of Janus' stock funds beat their average competitor over the past three, five and 10 years.
One bumbling shop that didn't make our list because it's not among the 10 biggest fund companies is
American Express Funds
. Of the firm's 15 domestic-stock funds that are at least five years old, just three top their average peer over the past three or five years. The firm's recent hiring of three Fidelity managers indicates it's trying to right its ship.
The bottom line is that few of us think of fund families anymore, preferring to look at individual funds. But it's a worthwhile exercise because some fund companies' culture and style lend to lower lows for their funds, not to mention for those funds' shareholders.
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
firstname.lastname@example.org, but he cannot give specific financial advice.