The 10 Biggest Wealth-Destroying Funds of 2004

There is a fast and easy way to find out which mutual funds have the highest returns for the year to date: Morningstar's Quickrank tool. However, I think it's more interesting to see which funds have made or lost the most money for investors. It's one thing for an obscure high-risk fund to put up big numbers while no one owns it, but it's quite another to build value for millions of shareholders.

Thus, each year I run data to see which funds have created and destroyed the most fundholder value. This week, I'll look at the biggest value destroyers of 2004. These reflect a combination of poor use by investors and poor performance by the funds. To calculate the destroyers, we take the asset levels as of the end of November and back out cash flows over the year then subtract the asset level at the beginning of 2004. Obviously, a fund would have to have a decent-sized asset base to get on either list.

 Fidelity Select Electronics  (FSELX)
This fund wiped out $526 million of investors' money. The reason is pretty simple: This fund invests primarily in semiconductor stocks--which have gotten crunched this year. In addition, those losses triggered redemptions, which meant some shareholders missed out on a fall rebound, which would have helped recoup some of those losses.

That doesn't mean that this is a bad fund or that it won't make most shareholders money over the long haul. However, volatile funds and flighty investors are a bad mix. One reason that we risk adjust performance when figuring a fund's star rating is that, from years of observation of investor behavior, we know that people fare much better in relatively stable funds than they do in sector funds and other high-risk funds.

 Smith Barney Large Cap Growth (SBLGX)
Did I mention that chip stocks have been roughed up? This fund owns  Texas Instruments (TXN) and  Intel (INTC) as well as some other stocks that got whacked including  Coca-Cola  (KO). On the whole, it burned $254 million of shareholder money. Although 2004 was brutal, this fund has produced strong long-term performance and we continue to like it.

 White Oak Growth Stock (WOGSX)
This fund is a long-time chip-stock fan, too. Manager Jim Oelschlager has nearly half the fund's assets in computer hardware stocks, and the fund has been that way through thick and thin. So far in 2004, the fund stomped out $162 million of shareholders' money.

 Rydex Juno Investor (RYJUX)
Can the average Joe time the bond market? Probably not. This fund, which acts as a bet against bonds, was a hot seller earlier in the year when it looked as though the bond market was a debacle. However, the bond market turned out to be surprisingly resilient and this fund destroyed $157 million of shareholders' money.

 Firsthand Technology Value 
A concentrated portfolio full of semiconductor and networking stocks has got this fund in the dumps. It eliminated $103 million of shareholders' money.

Rydex Venture 100 (RYVNX)
After reading my previous discussion of tech funds that got hit, you'd think a fund that is 200% the inverse of the Nasdaq 100 would be doing great. Alas, some tech stocks have done okay and this fund has lost $102 million of shareholders' money.

 PIMCO PEA Innovation 
Stop me if you've heard this before. This fund owns a lot of semis and.... Anyway, it snuffed out $101 million of shareholders' money.

 SunAmerica Focused Large Cap Growth 
Funny how all the attention goes to focused funds with great returns. You don't hear much mention of the fact that concentration can boost the downside just as much as the upside. This fund owns  Intel (INTC) and  Coca-Cola  (KO), and it destroyed $94 million of investors' money in 2004.

 Fidelity Select Technology (FSPTX)
This is a pretty good fund, but it wasn't able to overcome the sector's swoon. It destroyed $82 million of shareholders' money. The fund tends to invest in a lot of well-known tech stocks, so it's not likely to avoid a broad correction or a rally.

 Prudent Bear (BEARX)
Remember how much of the news media was hyping bear-market funds in 2002? Well, this fund lost 10% in 2003 and is down 15% this year. Maybe bear funds aren't such a good idea. Certainly, it isn't easy to time your entry and exit. This fund wiped out $63 million in shareholder value.