2/25/2011 1:03 PM ET|
5 funds that shouldn't be so popular
Familiar names and past glories have a lot of appeal. But if a mutual fund's performance no longer lives up to its shiny reputation, investors should take heed.
There is a good amount of turnover in the mutual fund industry. Often, funds that are relatively new and cannot post competitive returns are 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.
Yet could familiarity give a fund a longevity it doesn't deserve? A fund with a storied past, possibly under the helm of a legendary portfolio manager, might attract investment funds long after it has changed management and fallen back into the pack. Other funds become entrenched in corporate retirement plans, or rely on marketing rather than performance to draw attention.
Of course, these types of funds don't represent good investment ideas. Let's look at some widely known funds and ask: What have they done lately?
Launched in 1963, Fidelity Magellan gained traction only after legendary investor Peter Lynch came on board in 1977. Lynch went on to post one of the best records in mutual fund history, with an average annual return of 29%.
Lynch left the fund in 1990, and subsequent managers fell short of his remarkable record. The past few years have been particularly tough: The fund's manager, Harry Lange, made a bad bet on financials in 2008, when the fund declined by 49%.
Over the past five years, this fund has posted returns that have been lower than 88% of its peers in the large-cap growth category.
American Funds Growth Fund of America
But can it be nimble enough to provide investors with exposure to growth? Perhaps this is why redemptions have amounted to close to $9 billion over the past year.
The fund's top holdings represent the typical large-cap fare and include Oracle (ORCL, news), Google (GOOG, news), Microsoft (MSFT, news) and Apple (AAPL, news). To juice things up, the fund's manager, James Drasdo, is increasing its exposure to foreign securities. This is certainly a smart idea; with its massive size, the fund has little choice but to look outside the United States.
Templeton Growth is another fund with a rich history. It was created in 1954 by John Templeton, who saw tremendous opportunity in foreign markets, especially Japan. Templeton eventually became a billionaire because of his investing prowess.
Unfortunately, Templeton Growth has been lackluster in recent years. The fund made some bad decisions, such as getting aggressive in Europe. lt also took a big position in health care stocks. There's money to be made in both areas, but it's important not to get in too early.
JHancock2 Lifestyle Balanced
JHancock2 Lifestyle Balanced (JALBX) is focused on providing steady returns. In general, manager Steve Orlich employs a 60-40 split between stocks and bonds.
That mix should give the fund downside protection; fixed-income investments provide a buffer, while equities allow participation in rallies. This fund has fixed-income exposure to junk bonds, however, which can be solid investments but also pack some volatility.
Legg Mason Cap Management Value A
Between 1991 and 2005, Bill Miller's Legg Mason Cap Management Value A (LGVAX) fund beat the Standard & Poor's 500 Index ($INX) (even after adjusting for fees). It was a stunning performance, and no doubt resulted in huge inflows of investment funds.
But weren't markets supposed to be efficient? Well, perhaps they were -- in the long run. Miller in recent years has had a tougher time, underperforming the market in 2006, 2007, 2008 and 2010.
No doubt, Miller has tried extremely hard to return to his former market-beating ways. To that end, he has invested heavily in tech, financials and health care. Yet that has increased the overall risk to investors.
|Take a second look?|
|Fund||Category||Expense ratio||3-year return (annualized)|
|Fidelity Magellan (FMAGX)||Large-cap growth||0.74%||-1.3|
|American Funds Growth Fund of America (AGTHX)||Large-cap growth||0.69%||1.5%|
|Templeton Growth (TEGRX)||World stock||1.35%||-1.8%|
|JHancock2 Lifestyle Balanced (JALBX)||Mixed asset||0.56%||4.2%|
|Legg Mason Cap Management Value A (LGVAX)||Large-cap core||0.99%||N/A|
This article was reported by Tom Taulli for InvestorPlace.
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I like the discussion about mutual funds, really you need to look at the long-term effectiveness and not the short-term. Yes if you go directly into funds, you can pay a 1-6% fee depending & some have an exit fee plus the entry fee.
As one person has mentioned before, Insurance companies offer a way to have access for your retirement or 401K plans for those US workers. But Insurance companies are betting on the Insurance side of the game, death etc... & not the real benefit of retirement. Do you want a death insurance or a retirement. AIG almost went out of business handling insurance & investing. Most Insurance plans for retirement etc. have 7 funds to move between when needed. It´s not enough to give your portfolio a real chance, not to mention the security at the time for Retirement. If your company goes out of business, what´s the protection on your future assets. Make sure it´s at least 90%, worst case situation you have 10% in litigations.
We only recommend Institutions with 90% investor protection & access to 200 world mutual funds with a beneficiary plan of 101% incase of that death. Protect your future with a real investment for retirement & not one for when you die. All this should be free of Advisory charges like we do, you should also have flexibility in term, liquidity & free entry into mutual funds plus free fund switching.... then with the right plan like this you will guarantee to make money in your future investment for retirement or savings of choice. Best of luck to all those looking for real Help in mutual funds. Looking at the bigger picture outside the US mutual funds, banks etc.. there is real help & advice... because we offer what I mentioned before
What the article is not telling you is that there are over 10,000 different mutual funds that
are sold in the U.S. and that on average only 4 or 5 a year will beat the SP500. Good luck
figuring out which ones will do that! The other thing that none of the articles that I have
read in MSN mention is the overall market performance in the last 10 years. In the past
10 years the overall market return has been LESS THAN ONE PERCENT ANNUALLY!
TALK ABOUT BEATING A DEAD HORSE! How is a person supposed to grow their
retirement, and actually retire on ONE PERCENT A YEAR!
I have personally gone to insurance products , which if you shop around, can yield you
6 to 8 percent a year growth for retirement. Another strategy that is put down by most
investment advisors is BUYING A BENEFIT WITH YOUR 401K MONEY. Buying an
annuity, or structuring a Non-Comp life insurance policy that spits out tax free
income is a great way to handle some of your money. And 401k plans allow for
intrgrated life inside them!
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