• / Free eNewsletters & Magazine
  • / My Account
Home>Research & Insights>Investment Insights>First-Half Grades for 10 of the Biggest Mutual Funds

Related Content

  1. Videos
  2. Articles

First-Half Grades for 10 of the Biggest Mutual Funds

Were American Funds able to deliver the goods?

Russel Kinnel, 07/05/2006

The first half of 2006 is in the books, and what a doozy it was. We began with a great rally, then rising inflation and a newfound aversion to risk sent markets plummeting, then we rebounded a bit. Just like a roller coaster, we've soared and plunged only to end up where we started.

The indexes tell the story: The S&P 500 and Morningstar US Market Index (a broad measure of the overall market) finished the first half up 2.7% and 3.3%, respectively. Eight of the nine Morningstar style box indexes had positive gains, but large growth shed 3.1%. The best spots were small core (up 10.2%) and large value (up 8.4%). Rising inflation hurt bonds as the Lehman Brothers Aggregate lost 0.7%, while a falling dollar made up for flat international equity markets to boost the MSCI EAFE 10%.

Let's take a look at how the 10 largest actively managed funds fared amid those wild swings in the first half. I'll give each one a grade for how they performed given their investment approaches.

1. American Funds Growth Fund of America AGTHX
When large growth is the worst-performing category--as it was in the first half and has been for the better part of the past five years--Growth Fund of America is a pretty good bet to hold up better than its peers.

That's because it also has a lot of blend and value stocks as well as a slug of cash. (A slug of cash is a recurrent theme for most of the American Funds on this list.) In fact, this fund's 2.7% return beat 90% of its large-growth peers for the first half.

A bunch of energy stocks, including Schlumberger SLB, helped the fund stay out of the red. Management also made some great picks in other sectors including Oracle ORCL and Best Buy BBY. As I said, this market was favorable to the fund's relative performance, but even so I'll give it an "A" for the first half.

2. PIMCO Total Return PTTRX
What happens when inflation spikes and a bond fund manager is expecting inflation to remain low? It gets stung, of course. That's what happened in June, as this fund fell below the Lehman Brothers Aggregate's returns and is barely ahead of its average peer for the year to date.

The fund's 0.7% loss means it will have to turn in a better second half to finish in its accustomed spot ahead of the index and most of its peers. Considering the fund (at least its institutional share class) starts out with a big cost edge on most intermediate-bond funds, the first half is pretty disappointing. Even so, the fund is only behind the index by 20 basis points or so, and it can easily make up that ground. (For more information, read Bill Gross' latest take on the economy and interest rates.) First-half grade: "B-."

blog comments powered by Disqus
Upcoming Events
Conferences
Webinars

©2014 Morningstar Advisor. All right reserved.