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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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.
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) - Get PIMCO Total Return A Report 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
Fidelity Magellan fund, run by Bob Stansky since 1996, and the $77.6 billion
Vanguard 500 Index, which tracks the
. 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.
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
Investment Company of America and
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
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.
New Perspectives and
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.
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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."
Of course, there are other solid funds on our list as well. The no-load, $25 billion
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
American Century Ultra fund and the $33 billion
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
Fidelity Growth Company fund and the shuttered $28 billion
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
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.
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.