Most stock funds are suffering, but the averages don't tell the whole story.
Although stock markets revived in the second half of last week, overall this has been a troubling year for stocks around the world and the funds that invest in them. However, it hasn't been the same dreary story for all. For some funds, the dreariness has felt more like disaster, while for a fortunate minority, rays of sunlight have been peeking through the clouds.
The contrasts are evident in comparisons among categories but also appear within them. It can be tempting to look only at averages, but much more lies beneath the surface.
Growth in Large Growth
Through Oct. 6, the large-growth category average is down 7.6% for the year to date. That's the mildest loss suffered by any of the nine domestic Morningstar Style Box categories (large value, small blend, etc.) but still an unpleasant experience for shareholders of the funds. However, there has been a wide variety of outcomes within the group.
Most notably, many large-growth funds have suffered losses greater than 15%. These include two whose managers were replaced last month: Fidelity Magellan FMAGX and Marsico 21st Century MXXIX/Columbia Marsico 21st Century NMTAX. For Magellan, many different lagging stocks rather than one particular bet were the culprits this year. For the Marsico fund, an overly enthusiastic view on economic recovery, which in part led to a portfolio with plenty of financials, hit the fund hard.
the other end of the spectrum lie a handful of large-growth funds whose
year-to-date returns surprisingly land in positive territory. Near the top is
Wells Fargo Advantage Growth SGRAX. That's particularly impressive given the number
of mid- and small-cap stocks in this portfolio. The fund's wide range has
typically provided a boost, for smaller stocks have outperformed in recent
years. But such fare has struggled even more than big companies this year.
and Losers in the Large-Value Realm
This category has a deeper average loss than large growth--it's down 8.8% for the year to date--but the dispersion in the group is even greater. At the bottom end, besides the well-chronicled travails of Fairholme Fund FAIRX lies another fund with a stellar long-term record that's struggling mightily. Interestingly, the reasons for Columbia Value & Restructuring's EVRAX problems in 2011 bear no resemblance to those of Fairholme. While Fairholme's punishing losses have resulted from its heavy stake in financials, the Columbia fund is suffering from a decisive tilt toward economically sensitive issues in the energy and basic materials sectors. With doubts spreading about the strength of economic recovery, such stocks have been clobbered.
Some large-value funds, though, have held up quite well this year. Those around the top of the chart tend to have something in common: the word "dividend" in their names, or at least in their mandates. Stocks paying decent dividends have been among the best performers in this year's troubled climate. Many investors have sought the income these stocks provide at a time when bonds and money-market funds no longer can be counted on for that purpose. Others have simply gravitated toward companies they consider less economically sensitive, many of which, such as big pharmaceutical firms or consumer-goods companies, pay solid dividends. Several funds with a dividend focus have posted gains so far this year and others have just minimal losses.
Shine's Come Off Emerging Markets
You won't find any funds with positive 2011 returns in this category. With Brazil down even more sharply than hard-hit European markets, and with many other developing stock markets struggling, this has been an especially dismal year for funds in the diversified emerging-markets category. The group average has plunged 22.5% for the year to date. But, as with other groups, the average tells only so much. Many funds have lost more than 25%. Putnam Emerging Markets Equity PEMMX has one of the worst showings, down 30.5% so far this year. Its country and sector weightings in general aren't far out of line with category averages, but an underweighting in the consumer-defensive area hasn't helped.