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Fund Spy

2005's Top Fund Shop Revealed

And who takes the crown for five years?

One of the best ways to measure a fund company's success is to look at asset-weighted returns. Fund companies often like to trot out their funds' average return rankings over given time frames, but a simple average gives equal weight to the big funds as well as the small fries. Asset-weighted returns, by contrast, show you how most of a firm's shareholders have done by giving greater weight to the big funds.

To calculate asset-weighted returns for the 10 biggest fund families, we took all of the relative performance percentile figures for each firm and weighted them based on the assets in each fund, then divided by assets to come up with the total figure.

By looking at percentile performance, you can roll up performance in different asset classes because all funds have percentile performance figures. To do this, we simply take all the funds in a fund family and assign a weighting to match their assets and then average the results. It's worth noting that I excluded institutional funds in order to focus on those for individual investors.

And the Top Shop Is ...
Among the 10 biggest shops, best in show clearly goes to Dodge & Cox, whose funds had an asset-weighted average return ranking of top 22% for 2005 and top 3% for the trailing five years. The firm has an outstanding analyst staff, low costs, and, unlike some others on this list, is willing to close funds when needed. Currently, two of its four funds are closed.

 How the 10 Biggest Fund Shops Fared
 2005 Return*% Rank vs.
3-Year Return*% Rank vs.
5-year Return*% Rank vs.
Dodge & Cox8.51%2217.18%1110.18%3
PIMCO Funds3.84%375.60%396.20%27
T. Rowe Price8.55%4016.68%385.31%27
American Funds8.92%4216.05%405.69%23
Franklin Templeton6.71%5013.40%366.53%25
* Asset-weighted

One of the biggest surprises on the list is that Columbia Funds tied PIMCO for second place for 2005. As one of the best bond managers around, it's no surprise that PIMCO is near the top. But Columbia?

Chances are that you're familiar with one or more of the pieces at Columbia, but not the whole shop. BankAmerica owns the firm and, like the bank itself, is the result of a slew of mergers. Galaxy, Nations, Liberty, Stein Roe, and Colonial are among the firms that have been combined to create Columbia. Columbia and its most recent merger partner, Nations Funds, both ran afoul of regulators for a variety of bad deeds that emerged in the market-timing scandal.

However, Columbia has cleaned up its act and streamlined operations so that it's more coherent and better in quality, too. However, part of the firm's improved performance owes to the fact that it merged away many crummy funds. In addition, three of the funds that contributed most to the firm's impressive showing aren't really part of the Columbia management group in Boston.  Columbia Acorn (ACRNX) is nominally part of Columbia but is run out of Chicago by Wanger Asset Management, which operates separately from the rest of the firm.  Columbia Marsico Focused (NFEAX) was another big winner. Marsico is owned by BankAmerica, but it's a separate unit and subadvises the fund. Finally,  Columbia International Value (EMIEX) is subadvised by Brandes.

Still, Columbia deserves credit for top-quartile performance from some of its larger funds, such as  Columbia Large Cap Value (NVLUX). Overall, this is encouraging, but the firm still has work to do if it wants to be considered one of the better shops.

Also noteworthy is that Fidelity overall had a respectable performance for 2005, tying for fourth with top 38% performance despite the problems in its domestic-stock group. The biggest contributors were Will Danoff's  Contrafund (FCNTX) (speaking of funds that should close), Bill Bower's  Fidelity Diversified International (FDIVX) (which is closed), and Steve Wymer's red-hot  Fidelity Growth Company (FDGRX). Larry Rakers'  Fidelity Balanced (FBALX) and Rich Fentin's  Fidelity Value (FDVLX) also performed well. Although not among the largest funds within Fidelity, Fidelity's bond group also was a big contributor as it put up strong returns across the board.

The Also-Rans
On the downside, you might be surprised to see that American Funds' asset-weighted returns for 2005 came in at eighth on our list, as the firm had a better year for sales than performance. With asset-weighted returns in the top 42% performance, American was actually pretty close to the next six above it, as they ranged between top 37% and top 42%. Outstanding performance by  Growth Fund of America (AGTHX) and  EuroPacific Growth (AEPGX) was watered down by crummy returns at  Washington Mutual (AWSHX) and  Income Fund of America (AMECX).

At Washington Mutual (AWSHX), banks, telecom, and pharmaceutical stocks held it back while Income Fund of America (AMECX) was hurt by telecom and food stocks. Things were brighter on the growth side.  Google (GOOG) and energy stocks spurred the planet's biggest fund, Growth Fund of America (AGTHX), to another strong year. Meanwhile EuroPacific Growth (AEPGX) was in the right place at the right time with big investments in Japan and Latin America.

At last place Franklin, the three largest funds produced bottom-third performance last year.  Franklin Income (FKINX) was done in by high-yielding but underperforming health-care stocks.  Templeton Growth (TEPLX) was also singed by pharma but it also was hurt by big media stocks.  Templeton Foreign (TEMFX) was hurt by a light weighting in energy and a big weighting in telecom and media.