Plus, CGM Focus, Amana Funds, American Funds, and Fairholme did well.
Morningstar's fund analysts cover 2,000 mutual funds. Their full analyst reports, including Stewardship Grades, are available in Morningstar Principia Mutual Funds Advanced and Morningstar Advisor Workstation Office Edition.
It has been almost six months since the stock market (as measured by the S&P 500 Index) bottomed in early March. While it is anyone's guess as to whether the market will hit fresh new lows in the future, we thought it would be interesting to see which large-cap domestic-equity funds did the best over this past market cycle.
The short-term performance of equity funds is often nothing more than noise. But looking at a full market cycle, and preferably several full market cycles, can give an investor an idea of how a fund behaves in rising and falling markets.
Now, there are a lot of ways to define a full market cycle, but it should include both a bear and bull market. You can go from market peak to market peak, such as September 2000 to November 2007, or from trough to trough, such as October 2002 to March 2009. Both were about seven years, which is a decent amount of time to measure an investment approach.
For this exercise we focused on the Oct. 4, 2002, to March 9, 2009, period (trough to trough). We searched for large-cap actively managed funds (both load and no-load) with at least $100 million in assets as of August to see which did best. We also looked at how some of the industry's biggest and more interesting funds fared. Here they are.
Best-Performing Funds...........Anlzd Total Ret (%) 10/4/02 - 3/9/09
Amana Trust Growth
Amana Trust Income
Eaton Vance Dividend Builder
Vanguard Capital Opportunity
Largest Actively Managed Funds
American Funds Growth Fund of America
American Funds Invest Co of Am
American Funds Washington Mutual
American Funds Fundamental Investors
Dodge & Cox Stock
Vanguard Windsor II
Davis NY Venture
Fidelity Growth Company
T. Rowe Price Equity Income
S&P 500 Index Fund
Vanguard 500 Index
Overall, out of the 662 actively managed large-cap funds with more than $100 million in assets, 396 (or about 59%) were able to beat the Vanguard 500 Index fund over the time period examined. This analysis leaves out the hundreds of poor-performing funds that were either closed or merged away during the same period. For example, almost 400 funds have been closed or merged so far this year alone.
Still, active managers, even those running funds with huge asset bases like the American Funds, acquitted themselves well. The big disappointment on the list is Dodge and Cox
Both Amana funds near the top of the list make a lot of sense, and we would not be surprised if they land near during this next market cycle. Manager Nick Kaiser invests in accordance with Islamic law, which means he holds few companies with meaningful amounts of debt. This is partly why the funds did well last year, as it held few financial companies. But both funds also did well in prior years; each slightly trailed the S&P 500 Index only once since 2002 (Growth
Fidelity and TIAA-CREF Add Index Funds to Target-Date Lineups
Fidelity will soon launch 12 Fidelity Freedom Index funds. The firm already has an actively managed lineup of target-date funds in its Freedom Funds series, which launched in 1996. TIAA-CREF is following suit and will add a similar lineup to its actively managed life-cycle funds.
The new Fidelity Freedom Index funds will be significantly cheaper than their actively managed target-date funds and will have slightly different glide paths. According to Fidelity, all of the funds will have an expense ratio of just 19 basis points. This is just 1 basis point more than the Vanguard lineup of target-date funds, which also employ cheap index funds. Meanwhile, TIAA-CREF's new funds will have an expense ratio between 19 and 23 basis points.
RS is losing manager Bill Wolfenden III as of Sept. 1. Wolfenden has been a manager on RS Smaller Company Growth
One big firm continues its push into ETFs, while another says it is unlikely to enter the ETF space. PIMCO has rolled out its second ETF, a short-maturity Treasury Inflation-Protected Securities fund. The 1-5 Year U.S. TIPS Index Fund is the first of three planned ETFs the firm has that will mainly invest in TIPS. Meanwhile, multiple press reports note that Fidelity president Rodger Lawson has no plans for a big push into ETFs, at least for now. However, because of the fast-growing ETF market, there are internal discussions at Fidelity about whether the firm should follow the likes of Vanguard and other firms, which have made a big push into the market, while they still focus on providing a wide lineup of traditional mutual funds.
ING SmallCap Value Multi-Manager
Get fund news delivered to your e-mail inbox every Monday. Sign up for our free Fund Times e-newsletter.