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:

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10. JANUS TWENTY ( JNTFX)

RETURN: 2.4%

ASSETS: $ 9.3 billion

MANAGER: Ron Sachs, since January 2008

TOP STOCKS: Apple ( AAPL), 12%, Celgene ( CELG), 7%, and Anheuser Busch ( ABI), 5.3%

BIG WINNER: Tyco Electronics ( TEL), 2% of fund assets, is up 36% this year.

STRATEGY: This fund's concentrated portfolio -- 38 stocks with 52% of the fund invested in the top 10 -- worked against it. Its three biggest losers are Cisco ( CSCO), at 4.7% of the fund, down 20% this year; Google ( GOOG), at 4.7%, down 7.6%; and Bank of America ( BAC), at 3.5%, down 21%.

The 50% gain of its largest holding, Apple ( AAPL), at 12%, wasn't enough to offset the losers. It had several other winners -- retailer Limited Brands ( LTD), up 73%, and Ford ( F), up 68%, but they weren't enough to make up the lost ground. The fund lost 42% in 2008 and returned 43% last year. Computer hardware, at 20%, is the largest sector weighting, followed by financial services, at 18%.

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9. PRUDENTIAL JENNISON 20/20 FOCUS ( PTWAX)

RETURN: 2.2%

ASSETS: $2.5 billion

MANAGER: Sipros Segalas, since 1998; David Kiefer, since 2004

TOP STOCKS: Novartis ( NVS), 4.3%, Apple ( AAPL), 3.7%, and Bunge ( BG), 3.2%

BIG WINNER: Liberty Global ( LBTYK), 2.6% of the fund, up 60%.

STRATEGY: Although the fund holds only 39 stocks, it has a diverse portfolio because most of its top 25 holdings have a roughly 2% allocation. The fund's holdings change once within a calendar year -- the managers are big traders. There were no home runs in the portfolio, but there were a couple of big losers, including H&R Block ( HRB), down 40%, and Southwestern Energy ( SWN), down 22%.

Big bets on energy stocks, the largest fund sector at 14%, didn't pay off. The best performer is Liberty Global ( LBYTK), which owns cable satellite networks in Europe, Australia and South America. It has soared 60%.

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8. INVESCO CHARTER ( CHTRX)

RETURN: 2.2%

ASSETS: $ 5.3 billion

MANAGER: Ronald Sloan, 2002; Brian Nelson and Tyler Dann II, both 2007.

TOP STOCKS: Cash or equivalents, 20%, Kroger ( KR), 3.3%, and Progressive ( PGR), 3.1%

BIG WINNER: Baker Hughes ( BHI), 2% of the fund, up 36%.

STRATEGY: A fifth of the fund is in cash, which means it lost out on late-in-the-year gains. There are no big losers in the portfolio -- the biggest, by far, is Boston Scientific ( BSX), down 24% -- but there are no big winners, either.

The largest industry weighting is health care, at 17%, and financial services, at 16%. Those two are out of favor with investors after a big run last year.

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7. LEGG MASON CAPITAL MANAGEMENT VALUE ( LMVTX)

RETURN: 2.11%

ASSETS: $4 billion

MANAGER: Bill Miller, since 1982; Mary Chris Gay (March 2006), Sam Peters (November 2010)

TOP STOCKS: AES ( AES), 7.4%, Transocean ( RIG), 4%, and IBM ( IBM), 3.8%

BIG WINNER: Genzyme ( GENZ), 2.7% of the fund, up 44%.

STRATEGY: This fund's returns are a roller-coaster, losing 55% in 2008, gaining 41% in 2009, and struggling once again this year. When your top two stock picks, which make up 11% of assets, are double-digit losers, you've got challenges.

The biggest holding, AES ( AES), is an electric utility, while Transocean ( RIG) is a supplier of oil-field services, notably to offshore oil rigs.

The fund holds 43 stocks and the top 10 make up 38% of the portfolio. Turnover is a tiny 3.9%. Financial services is the top sector weighting, at 25%, followed by computer hardware, at 16%, and health care, at 16% -- two out-of-favor sectors. Biotechnology giant Genzyme leads the gainers.

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6. EATON VANCE DIVIDEND BUILDER ( EVTMX)

RETURN: 2.1%

ASSETS: $1.3 billion

MANAGER: Judith Saryan, since March 1999; Charles Gaffney (August 2007)

TOP STOCKS: Apple ( AAPL), 3.3%, IBM ( IBM), 2.7%, and Prudential ( PRU), 2.4%

BIG WINNER: Seadrill ( SDRL), 2% of the fund, up 44%.

STRATEGY: No really big losers, and excluding its largest holding, Apple, no big winners, but it earns it way to a gain as a "dividend" fund, yielding an impressive 3.8%. Portfolio turnover is a speedy 152%. Most of its 76 stocks are well-known companies. Financial services is the largest sector weighting, at 16%, followed by industrial materials, at 13%.

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5. EATON VANCE TAX-MANAGED VALUE ( EATVX)

RETURN: 2.1%

ASSETS: $1.8 billion

MANAGER: Michael Mach, since 2000; and John Crowley, Matthew Beaudry, Stephen Kaszynski, all January 2010.

TOP STOCKS: Johnson & Johnson ( JNJ), 2.5%, Wells Fargo ( WFC), 2.5%, and Pfizer ( PFE), 2.5%

BIG WINNER: Union Pacific ( UNP), 1.7% of the fund, up 50%.

STRATEGY: The financial-services sector makes up 26% of the holdings, which hurt its performance, followed by health care, at 13%. The fund holds 81 stocks and only 24% of its assets are in the top 10 so it's spread thinly.

Eight of the top 25 holdings have fallen. Bank of America ( BAC) is its only big loser, but it has few big winners, except for the railroad conglomerate Union Pacific ( UNP). The fund's yield of 1.1% is offset by expenses of 1.2%.

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4. JANUS ASPEN FORTY INSTITUTIONAL ( JACAX)

RETURN: 1.9%

ASSETS: $1.1 billion

MANAGER: Ron Sachs, since January 2008

TOP STOCKS: Apple ( AAPL), 11%, Celgene ( CELG), 6.4%, and Anheuser-Busch ( ABT), 5.5%

BIG WINNER: Ford ( F), 2.5% of the fund, up 68%.

STRATEGY: Another highly focused fund, with half of its assets in the top 10 stocks. The fund has an impressive array of stocks in its top 25, but other than Apple, up 50%, and Ford, up 68%, there are no impressive returns. It's been hurt by bets on the computer hardware sector, at 19% of the fund, and financial services, also 19%.

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3. GMO QUALITY III ( GQETX)

RETURN: 1.1%

ASSETS: $15 billion

MANAGER: William Joyce, since 2004; Sam Wilderman (2005), Thomas Hancock (2009)

TOP STOCKS: Oracle ( ORCL), 5.7%, Microsoft ( MSFT), 5.6%, and Johnson & Johnson ( JNJ), 5.4%

BIG WINNER: Philip Morris ( PM), 1.7% of the fund, up 25%.

STRATEGY: The fund holds 78 stocks but it's very concentrated as the top 10 make up 43% of its holdings. Health care is a huge sector bet, at 29%, followed by consumer goods, at 24%. Microsoft, at 5.6% of the fund and its second-largest holding, is down 9.5% this year. Twelve of the stocks in the fund's top 25 have declined, although the list reads like a who's who of blue-chip stocks.

Apple ( AAPL) is the fund's big winner, but it only makes up 2.2% of the fund. The next biggest return comes from cigarette producer Philip Morris ( PM), with a 25% return, but it's only 1.7% of assets. The fund yields a decent 1.83%, and expenses are low, at 0.48%.

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2. JANUS FORTY ( JARTX)

RETURN: 1%

ASSETS: $7 billion

MANAGER: Ron Sachs, since December 2007

TOP STOCKS: Apple ( AAPL), 11%, cash, 7.7%, and Celgene ( CELG), 5.6%

BIG WINNER: Limited Brands ( LTD), 2.6% of the fund, up 73%.

STRATEGY: Another fund that has seesawed over the past three years, it lost 44% in 2008, and blazed ahead in 2009. It's very focused, holding only 39 stocks, and the top 10 holdings make up 49% of the portfolio. It has a 40% portfolio turnover rate. Without the outsized bet on Apple, the returns could have been a lot worse. A 7.7% allocation to cash doesn't help returns.

Janus Forty is yet another fund hurt by a big bet on financial-services stocks, which make up 18% of the fund. Computer hardware is the largest sector allocation, at 20%.

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1. INVESCO BASIC VALUE ( GTVLX)

RETURN: 0.5%

ASSETS: $1.2 billion

MANAGER: Matthew Seinsheimer, since 2001; Devin Armstrong, James Warwick, Jason Leder, Kevin Holt, all since June 2010

TOP STOCKS: Chubb ( CB) , 4.3%, Omnicomm ( OMC), 4.1%, and JPMorgan Chase ( JPM), 3.9%

BIG WINNER: Time-Warner Cable ( TWC), 3.2% of the fund, up 64%.

STRATEGY: An extremely volatile fund over the past few years, perhaps indicative of its bottom-up contrarian approach and management changes, it lost 52% in 2008, and rose by the same amount in 2009. Its management team was shuffled this year after Invesco acquired the Van Kampen funds from Morgan Stanley, resulting in the addition of four managers in June.

A concentrated fund with only 47 stocks, and a third of the portfolio in its top 10 holdings, it has a low portfolio turnover rate of 21%. A big bet on financial-services stocks, at 29% of the fund, including Bank of America ( BAC) and JPMorgan Chase, hobbled performance. Its best performer is Time-Warner Cable, followed by Honeywell ( HON), up 34%.

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