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The Most Popular and Most Shunned Funds of 2010

A closer look at how these funds have performed and their future prospects.

Greg Carlson, 06/14/2010

Investors might have been hoping for more calm in the equity markets in 2010 after a steep decline in 2008 and early 2009, followed by a huge rally. But it's been yet another turbulent year for stocks so far. Equities dropped a bit early on, then staged a rally led by much of the same cyclical fare that soared in 2009 before staging a sharp reversal when the government-debt situation turned out to be more dire than feared. Because we're already nearing the first-half point in 2010 and the market averages have been all over the place, we decided to take a closer look at the funds investors have been flocking to and those they've been fleeing. We included bond funds, too--although bond markets generally haven't seen a repeat of the turbulence of 2008-09, bond funds' flows are clearly affected by investors' sentiments about stock funds.

The Top Five
PIMCO Total Return PTTAX
2010 inflows: $18.6 billion (All figures are through the end of May.)

The overwhelming leader in net flows this year is a bond fund whose manager, Bill Gross, stated earlier this year that bonds have seen their best days. It's also worth noting that four of the five funds that have received the most money from investors are bond funds. Nevertheless, this fund's A shares have gained nearly 4% for the year to date through June 9, 2010 (slightly outpacing both the Barclays Capital U.S. Aggregate Bond Index and the intermediate-bond category norm), while stocks (as represented by the S&P 500 Index) are down 2%. Investors should keep their expectations for bond returns in check; this fund, for example, recently sported a modest yield of 3.88%. But even so, it's difficult to bet against Gross and his team.

Templeton Global Bond TPINX
2010 inflows: $7.9 billion

Investors have rushed into this fund despite the fact that the troubled eurozone makes up a significant chunk of its benchmark. To his credit, manager Michael Hasenstab has greatly limited the fund's exposure to that area (as well as to U.S. Treasuries and Japanese government bonds) and focused more on emerging-markets debt. While that bet might appear to court risk, many developing countries (particularly within Asia) are in substantially better financial shape than their Western counterparts. Furthermore, Hasenstab has hedged some of the fund's emerging-markets' currency exposure to damp volatility (though, at one third of assets, it's still substantial). This approach has certainly paid off over the long haul. As for 2010, the fund has gained 4% through June 9, beating the vast majority of its international-bond peers.

Vanguard Total Stock Market VTSMX
2010 inflows: $6.7 billion

This fund's flows appear to be related to the popularity of target-date funds; it's a very large holding in Vanguard's target-date offerings, especially the longer-dated, equity-heavy ones. (For example, Total Stock Market comprises 66% of the assets of Vanguard Target Retirement 2030 VTHRX.) The fund's long-term record is solidly above-average thanks to its rock-bottom costs, but it hasn't been shooting the lights out. It finished within a percentage point of the large-blend norm in both 2008 and 2009. And for the year to date, it's flat (though that puts it ahead of most of its category peers). The fact that its inflows are at the top of the equity-fund charts could also be a reflection of investors' dim opinion of stock-fund managers following the disastrous losses of the October 2007-March 2009 bear market.PAGEBREAK

Vanguard Total Bond Market VBMFX
2010 inflows: $4.8 billion

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