Aug. 13, 2002 — ‘It could have been worse,’ is probably the best that the ten largest funds could say about this year’s wounding returns through July.
The heavyweights’ generally moderate risk profiles have apparently helped them avoid some of downsides of this year’s unforgiving market. The ten largest funds’ lower volatility likely results from the comparatively low turnovers their managers adopt to maneuver such huge portfolios. Erring on the side of caution, the heavyweights have all ended up with lower standard deviations than their respective peer averages. Standard deviation is a measure of the variability of a fund’s returns.
With most of the heavyweights showing double-digit losses so far this year through July, it’s probably small comfort that the giant funds are maintaining their long-standing record of generally beating their respective fund-style categories. While they may have missed some of the highs of the 1990s bull markets, the giant funds have also sidestepped some of the harsher lows of the current bear market.
One sign of changing investment climate is the appearance of a balanced fund in the ten largest roster: Income Fund of America/A (AMECX). Even with a conservative mix of 58% in equities, 28% in bonds, and 14% in cash, as of July 31, the fund still saw losses this year from energy stocks such as Royal Dutch Petroleum (RD), and Marathon Oil (MRO), and retailers such as May Dept Stores (MAY) and Albertson`s, Inc (ABS).
Despite value investing’s generally better showing than growth investing among equity styles this year, the next best performing heavyweight after Income Fund is Fidelity Contrafund (FCNTX), which is classified as a large-cap growth offering. Generally leading among fund giants for most of this year, Contrafund has gained from such successful holdings as Lockheed Martin (LMT), 3M Co. (MMM), and Tenet Healthcare (THC). Contrafund’s gains have also been accompanied by setbacks among such holdings as PepsiCo Inc. (PEP), Colgate-Palmolive (CL), and Berkshire Hathaway`A` (BRK.A).
Washington Mutual Investors Fund/A (AWSHX), which turned in strong gains in recent years as a value fund, has suffered along with most funds in the recent bear market. The fund generally moved sideways for most of this year until July when it fell sharply in the broad downturn. Washington Mutual’s performance this year has been hurt by such holdings as ChevronTexaco Corp. (CVX), Eli Lilly (LLY), and Verizon Communications (VZ).
Ten Largest FundsInvestment StyleStandard Deviation (%)2002 Returns Through July (%)July 2002Returns (%) Vanguard 500 Index/Inv (VFINX) Large-Cap Blend17.3-19.9-7.7
Fidelity Magellan (FMAGX) Large-Cap Growth18.0-21.2-7.2
Investment Company of America Fund/A (AIVSX) Large-Cap Value13.1-13.6-6.9
Washington Mutual Investors Fund/A (AWSHX) Large-Cap Value15.1-11.9-8.3
Growth Fund of America/A (AGTHX) Large-Cap Growth22.7-22.5-8.2
Fidelity Contrafund (FCNTX) Large-Cap Growth14.0-7.7-6.8
Fidelity Growth & Income (FGRIX) Large-Cap Blend12.8-15.1-6.0
American Century Ultra/Inv (TWCUX) Large-Cap Growth23.6-19.0-7.6
Vanguard Windsor II/Inv (VWNFX) Large-Cap Value16.1-14.0-9.4
Income Fund of America/A (AMECX) Balanced8.7-6.1-5.6
Large-Cap Growth Average24.5-24.4-7.9
Large-Cap Value Average16.2-17.0-8.6
Large-Cap Blend Average18.1-20.4-8.0
Balanced Funds Average10.1-2.6-0.2
Domestic Equity Funds Average*18.3-20.4-9.6
S&P 500Large-Cap Blend17.3-19.9-7.8
*Excluding sector and balanced funds.
Source: Standard & Poor’s. Total returns are in U.S. dollars and include reinvested dividends.