It's been a good year for PIMCO but an off year for many American Funds.
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By Russel Kinnel | 11-22-10 | 06:00 AM | Email Article

As 2010 begins winding down, I thought I'd take a look at how the largest mutual funds have done this year. It's been a pretty good year and really kind of quiet when you compare it with the extremes of 2008 and 2009. A little quiet is probably a good thing and I hope more investors will be coaxed out of their shell and back into stocks again.

Russel Kinnel is director of manager research for Morningstar and editor of Morningstar® FundInvestor℠, a monthly newsletter.

I'm focusing on this year's returns because it's helpful to understand how they got here and many investors will be sitting down with their 401(k) statements to review the year. But when evaluating a fund's overall merits, keep in mind that the long term is what really matters, along with other fundamentals, such as management and costs.

Here, then is a review of the 15 largest funds along, with their total assets, returns, and relative performance ranking.

 PIMCO Total Return ($256 billion) 9.6% return, top 24%
Chalk up another strong year to Bill Gross and company. In bondland this feels like the calm before the storm. Interest rates, credit quality, and inflation are comfortably muted, but there's the potential for inflation to surge and interest rates to spike. If they do, PIMCO Total Return will probably manage to limit the losses, though they are bound to stay within shouting distance of the Barclays Aggregate. Senior bond analyst Eric Jacobson points out that  PIMCO Unconstrained Bond  has greater flexibility to seek protection from those risks, so it's a tough call on which fund to buy.

 American Funds Growth Fund of America ($156 billion) 5.49%, top 72%
Some big tech giants, such as  Google ,  Microsoft , and  Cisco , have held the fund back this year. When you run a $150 billion growth-stock fund, you have to own a bunch of the biggest growth stocks, and that's what they've done. However, the fund recently boosted its flexibility somewhat by raising its foreign-stock limit from 15% to 25%.

 Vanguard Total Stock Market ($145 billion) 8.8%, top 16%
It's been a great year for shareholders in this fund and I'm not referring to performance. Vanguard is giving most of the shareholders in the investor share class a fee cut by lowering the minimum investment for Admiral shares on index funds to $10,000. In this case, the investor's bill is being cut by more than half, from 0.18% to 0.07%. Over time, that edge adds up.

 American Funds EuroPacific Growth A ($107 billion) 5.1%, top 49%
A quiet year with middling performance. This fund's eight managers have had some nifty winners, including  Novo Nordisk  (up 73%) and  Daimler  (up 30%) but laggards such as Banko Santander (negative 22%) and  Telefonica  (negative 3%) have limited the upside.

 Vanguard 500 Index ($97 billion) 7.7%, top 35%
As at Total Stock Market, the fee cut was 11 basis points, to just 7. Interestingly, this is the only fund among the 15 listed to have lagged its peers over the past 10 years. The culprit is overpriced megacaps from a decade ago.

 Vanguard Total Bond Market Index ($89 billion) 7.3%, top 70%
Shareholders with more than $10,000 are getting a fee cut from 0.22% to 0.12%.

 American Funds Capital World Growth & Income ($81 billion) 4%, top 79%
Another American fund with an off year but great long-term results. A preference for Europe and financials stocks has left it vulnerable to the debt mess in Greece, Ireland, and Spain. Still, the fund had nine consecutive years of strong relative performance from 2000 through 2008, so it's entitled to a little slack.

 American Funds Capital Income Builder ($79 billion) 6%, top 58%
This fund's dividend emphasis has led it into some of the weakest-performing sectors but sectors go in and out of favor, so I wouldn't worry.

 Fidelity Contrafund ($71 billion) 11%, top 20%
Last year was a rare off year for Will Danoff, as Contrafund trailed the large-growth average by a wide margin, though it did manage to top the S&P 500. But he's back in the groove this year. Danoff has found a slew of winners including  Apple ,  Berkshire Hathaway ,  McDonald's , and  Nike . Danoff is a flexible investor who simply goes where he sees the greatest return potential. That he can continue to succeed at this asset base is remarkable. At Growth Fund of America, 12 managers plus a team of analysts divvy up the fund; the most anyone is running at the fund is in the neighborhood of $12 billion, so Danoff is likely running more actively managed stock money than anyone else in mutual funds by a good margin.

 American Funds Income Fund of America ($67 billion) 8%, top 31%
This fund's mix of dividend-paying stocks hasn't hurt like it has some other American funds because it also has lower-quality bonds that have done well this year. On the flip side, it can mean rough patches in years like 2008.

 American Funds Investment Company of America ($60 billion) 4.6%, top 80%
It's been a disappointing year here. Many of the same names holding back Growth Fund of America are holding this fund back. However, its long-term returns remain strong and I like its long-term prospects.

 Franklin Income A ($56 billion) 9.6%, top 24%
A super-aggressive taste for yield driven by junk bonds and utilities was murder on this fund in 2008, when it lost 31%, but it recently crossed into positive territory for the trailing three years thanks to a robust rebound in 2009 and 2010. Anyone eyeing the fund's yield should see the 2008 loss and know that this fund requires a long holding period to enjoy.

 Vanguard Emerging Markets Stock Index ($57 billion) 12.6%, top 59%
This fund's shareholders with over $10,000 are getting a generous 17 basis-point fee cut to 23 basis points.

 Vanguard Wellington ($52 billion) 6.5%, top 73%
A great fund is having a sluggish year, but investors should be forgiving in light of the fact that it lost way less than its peers in 2008 and it has done quite well over the long haul. This year the fund hasn't so much had duds as a lack of big winners in its large-value equity portfolio. Top holdings  AT&T ,  Chevron , and  IBM   have been OK but not great. On the plus side, if you've got at least $50,000 in the fund, you have an 11 basis-point price cut coming your way.

 American Funds American Balanced ($49 billion) 9.1%, top 27%
This fund has done a little better with its value picks than some of its peers at American. A tilt towards industrials like Dupont ,  Boeing , and  Potash  has helped.

 

Fund Name
Morningstar Category
Total Ret YTD
Total Ret % Rank Cat YTD
Total Ret Annlzd 10 Yr
Total Ret % Rank Cat 10 Yr
Assets ($billion)
PIMCO Tot Ret Instl 
Int-Term Bond
9.57
24
7.76
3
$255.9
American Gr Fnd Amer A 
Large Growth
5.6
74
1.94
12
$156.1
Vanguard Tot Stk Mkt Idx Inv 
Large Blend
8.96
16
1.34
34
$144.6
American EurPac Gr A 
Foreign Lg Bl
5.63
49
6.17
9
$106.6
Vanguard 500 Index Inv 
Large Blend
7.47
34
0.3
54
$96.9
Vanguard Tot Bnd Mkt Index 
Int-Tm Bnd
7.34
70
5.97
41
$89.3
American Cap Wd G/I A 
World Stock
4.31
79
7.8
7
$81.0
American Cap Inc Bldr A 
World All
6.09
57
7.36
34
$79.4
Fidelity Contrafund 
Large Growth
10.82
20
4.92
2
$71.1
American Inc Fd of Amer A 
Mod All
8.22
32
6.45
3
$67.2
American Invmt Co of Am A 
Large Blend
4.71
80
2.48
18
$60.2
Franklin Income A 
Consv All
9.7
14
7.29
2
$55.7
Vanguard Emg Mkts Stock Idx 
Div Emeg Mkts
12.51
57
14.39
44
$55.3
Vanguard Wellington Inv 
Mod All
6.4
77
6.24
3
$51.7
American Amer Bal A 
Mod All
8.12
35
5.56
6
$49.3

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