Why they're struggling, and why it's not time to panic.
Get mutual fund and stock information from our analyst team delivered to your e-mail inbox every Tuesday. Sign up for our free Investment Insights e-newsletter.
Everyone knows that even topnotch funds will endure stretches where they aren't hitting their stride. Even so, it can be disconcerting when the trouble strikes. When a fund with a solid history hits the skids, even the most sober, long-term investor tends to raise some questions. What explains the poor showing? Is there anything going on that we should know about?
In most cases, there is nothing to worry about. For example, many of the best managers stick to fairly strict, inflexible strategies that they consider most likely to yield long-range success, and they don't waver when that style isn't in vogue. When their type of holding falls out of favor, there's little chance such funds will keep up.
Other common victims are concentrated funds. With a lot riding on a small number of stocks, setbacks in just two or three of them can send the fund's returns to the bottom of the short-term charts. Yet, talented investors can overcome such reversals to shine in a concentrated format over the long term.
Below are three funds that we have considered some of the most appealing in their fields but that are scraping the bottom ranks of their respective categories with about six weeks left in 2010. The good news is that in all of these cases, there are no signs of significant problems, and they remain worthy of attention.
It didn't work out so well in 2008, Sachs' first year at the helm. The funds lagged the large-growth average as the market cratered. But they roared back in 2009's rebound, landing in the top quartile. Stocks have risen again this year--but this time the funds haven't capitalized nearly as well as most of their peers. In fact, they're sitting in the bottom 10% of the category for the year to date through Nov. 18, trailing the group average by more than 5 percentage points.
What gives? There are two culprits in particular. Sachs owns more of the biggest stocks around, with far fewer mid-caps than rival large-growth funds. Mid-caps and "smaller large caps" have outperformed the giants this year by substantial margins. Moreover, Sachs has a much bigger stake in financials than most other funds in the group, and that sector has struggled this year. Many of the financial holdings in the Janus portfolios are down heavily this year, with a 22% loss from Bank of America