Bill Miller, Bruce Berkowitz and Kenneth Heebner are among the legendary mutual fund managers who have trailed their benchmarks by wide margins this year, hurt by a no-show economic recovery, a financial-industry rout, and record volatility.
A total of 72 percent out of 261 large-cap core funds are underperforming their indices, according to Goldman Sachs. For the 110 large-cap value funds, it's 62 percent; and among 216 large-cap growth funds, it's a stunning 84 percent. This at a time when the benchmark for most of them, the S&P500 Index , is little changed in 2011.
There are so many mutual funds that have performed horribly that many investors have to be asking, "Why pay a fee for this?" Especially when an index fund or an exchange traded fund does much better for less. Even some investment bank analysts have fared better.
Some investors, alas, are fed up. They pulled $55 billion from domestic large-cap core equity funds from the beginning of the year through Nov. 21, equal to 7.8 percent of their assets, S&P Capital IQ reports. Goldman Sachs predicts there will be $125 billion of retail equity funds redemptions in 2012, while exchange traded funds will see $100 billion in new purchases.
Morningstar analyst Kevin McDevitt reported that November's fund flows continue to indicate that investors are seeking safety and are avoiding risk above all else, which resulted in outflows out of both U.S. stock funds and international stock funds and inflows for taxable bond funds, municipal bond funds, and money market funds despite their historically low yields during the month, continuing a trend.
Even a couple of wily veterans, who were at the top of the rankings a decade ago, have been outfoxed by the current market environment and are each at the very bottom of the list in their fund categories.
Miller, who has been managing the $921 million Legg Mason Capital Management Opportunity Fund since 1999, has seen his mid-cap value fund tumble 36 percent this year, while Heebner, manager of the $1.8 billion large-growth CGM Focus Fund since 1997, has lost 27 percent.
Heebner's $1.8 billion CGM Focus Fund has plummeted 28 percent this year, hurt by owning the airlines Delta and United Continental . Delta has fallen 37 percent this year, and United is down 18 percent. Heebner, who's managed the fund since 1997, is known for having years in which the fund has rocketed more than 50 percent on outsized bets on targeted industries such as commodities or technology.
The $7.5 billion Calamos Growth Fund, run by a large team including family members John P. Calamos Sr., John P. Calamos Jr. and Nick P. Calamos for 21 years, has dropped 11 percent this year. Like other large, known funds, the performance is better over a longer period, particularly 10 years.
Here are six other U.S. equity mutual funds, each with over $2 billion in assets, that have sunk to the bottom rungs of the performance ladder in their fund category in 2011:
Fund profile: It has been managed by Lawrence Auriana and Hans Utsch since its inception in 1986. They invest primarily in small- and mid-cap growth stocks, with a preference for industry leaders with easy-to-understand business models.
Performance: down 14 percent, putting it in the 95th percentile in its mid-cap growth category, 10 percentage points worse than the category average.
Assets: $5.5 billion
Worst picks: Express Scripts , down 16 percent; Expediters International of Washington, down 24 percent; and Cummins, down 15 percent.
Lord Abbett Affiliated
Fund profile: Dan Frascarelli took over as manager in mid-2009, so he hasn't been at the helm long. "The fund owns more cyclical, economically sensitive firms with slightly more debt and higher valuations than its typical peer," Morningstar said.
Performance: down 9.8 percent, putting it in the 93rd percentile among large value funds and 6.8 percentage points below its category average.
Assets: $7 billion
Worst picks: Wells Fargo , down 14 percent; JPMorgan Chase , down 24 percent; and Goldman Sachs , down 41 percent.
Fidelity Dividend Growth
Fund profile: The fund has been prominent in Fidelity's stable and should do well given the emphasis on dividend-paying stocks in the current investment environment. But this year the large-blend category has struggled mightily. Its 536-stock portfolio has been managed by Lawrence Rakers since September 2008. Morningstar says returns have been volatile, "but it's a fine fund for a patient investor."
Performance: down 10.7 percent, putting it in the 94th percentile versus its large-blend category peers and 7 percentage points below their average return. But over three years it has an admirable 19.8 percent annual average return.
Assets: $8.5 billion
Worst picks: Citigroup, its second-largest holding, down 43 percent; Wells Fargo, down 14 percent; JPMorgan Chase, down 24 percent.
Goldman Sachs Large Cap Value
Fund profile: The fund's lead managers, Andrew Braun and Sean Gallagher, focus on large-cap firms with healthy free cash flow as well as strong and improving balance sheets. The fund has been overweight financials this year, including Bank of America.
Performance: down 11.7 percent, putting it in the 96th percentile in the large-value category, 7.9 percentage points below its peers' average return.
Assets: $2 billion
Worst picks: JPMorgan Chase, 4 percent of the fund, down 24 percent; Prudential Financial, down 6 percent; Teva Pharmaceutical, down 20 percent.
Fund profile: Managed by Bruce Berkowitz, the fund is known for its concentrated bets as it holds only 19 stocks. It has a 76 percent sector bet on financials. Its poor performance has resulted in a 55 percent decline in its asset base this year.
Performance: down 30.6 percent, dead last in the large-value category, with a return that is 27 percentage points below the category average. Over three years it has an average annual return of 8.4 percent.
Assets: $8 billion
Worst picks: American International Group, the largest holding at 22 percent of the fund, down 53 percent; Sears Holdings, 8 percent of fund, down 27 percent; Citigroup, 5 percent of the fund, down 43 percent.
Fund profile: Manager Brent Lynn has a reputation as a risk taker and is willing to bet on stocks of any market value and in any market worldwide, giving the portfolio a mix of foreign and domestic stocks. But this year most of those wagers have turned against him. He took sole control of the fund in June 2003.
Performance: down 32 percent, putting it in the 98th percentile in its foreign large-growth category, 18 percentage points worse than its category average. Over the past three years it has an average annual return of 14 percent.
Assets: $8.8 billion
Worst picks: Li & Fung, 8 percent of the fund, down 32 percent; Ford , 4 percent of the fund, down 37 percent; Delta Air Lines, 4 percent of the fund, down 37 percent.
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