There is a good amount of turnover in the mutual fund industry. If a fund is relatively new — and cannot post competitive returns – it will often be closed or merged away. The top mutual funds by assets for 2011 are, not surprisingly, the top fund investments by assets for 2010. And 2009.
They are familiar names like Fidelity Magellan (MUTF: FMAGX) and Templeton Growth (MUTF: TEGRX), names mutual funds investors will easily recognize from their 401k.
Yet there are some funds that simply won’t die. Why? One reason is that it may have had a storied past, such as because of a legendary portfolio manager. Or, the fund may be heavily entrenched in corporate retirement plans. Another possibility: lots of marketing.
Of course, these types of funds are not necessarily good ideas for investors. So, let’s look at some of them:
Fidelity Magellan (FMAGX)
Launched in 1963, the Fidelity Magellan (MUTF: FMAGX) fund did not get traction until Peter Lynch came on board in 1977. He would go on to post one of the best records in mutual fund history, with an average annual return of 29% (until he left in 1990).
Of course, it was impossible for subsequent managers to continue the performance. Actually, the past few years have been particularly tough. The portfolio manager, Harry Lange, made a horrible trade on financials in 2008. The result was a painful 49% loss.
Keep in mind that over the past five years, the Magellan fund has posted returns that have been lower than 88% of its peers in the large growth sector.
American Funds Growth Fund of America (AGTHX)
It’s a big name: American Funds Growth Fund of America (MUTF: AGTHX). And it’s a big fund, with a whopping $163 billion in assets. If it were a country, it would have a decent size GDP.
But can it really be nimble enough to provide investors with exposure to growth investments? It does seem far-fetched. Perhaps this is why redemptions have amounted to close to $9 billion over the past year.
The top holdings show the typical fare. These include Oracle (NASDAQ: ORCL), Google (NASDAQ: GOOG), Microsoft (NASDAQ: MSFT) and Apple (NASDAQ: AAPL). Although, to juice things up, the American Growth Fund is increasing its exposure to foreign securities. This is certainly a smart idea but it will likely mean more big-cap operators. Then again, with its massive size, the fund has little choice but to look outside the US.
Templeton Growth (TEGRX)
Templeton Growth (MUTF: TEGRX) is another fund that has a rich history. Back in 1954, John Templeton created the fund because he saw tremendous opportunity in foreign markets, especially in Japan. He ultimately became a billionaire because of his investing prowess.
Unfortunately, Templeton Growth has been mostly lackluster over the years. The fund made some bad decisions, such as getting aggressive in Europe. There was also a big position in health care stocks.
It’s true that a good investment strategy should look to the long haul. Yet it’s also important not to be too early. Consider that the three year average annual return is a painful -1.82%.
JHancock2 Lifestyle Balanced (JALBX)
JHancock2 Lifestyle Balanced (MUTF: JALBX) fund is focused on providing steady returns. In general, there is a 60-40 split with stocks and bonds (the fund has the discretion to make adjustments by as much as 10%).
In other words, it should provide downside protection because of the fixed income securities but also allow for participation from stock rallies.
However, the JHancock2 can be a bumpy ride. Keep in mind that the fund will get aggressive with its fixed-income portfolio, such junk bonds. While these can be solid investments, they do pack some volatility, which can be a surprise to investors.
Legg Mason Cap Management Value A (LGVAX)
From 1991 to 2005, Bill Miller’s Legg Mason Cap Management Value A (MUTF: LGVAX) fund beat the S&P 500 (even after adjusting for fees). It was a stunning performance and no doubt, resulted in huge inflows of investor funds.
But weren’t markets supposed to be efficient, right? Well, perhaps they are — especially in the long turn. As for Miller, it’s been a tougher time for the past five years. He underperformed the market in 2006, 2007, 2008 and 2010.
No doubt, Miller has tried extremely hard to return to his former market-beating ways. To this end, he has invested heavily in tech, financials and health care. Yet it has really just increased the overall risk to investors.
