A Look at Some of 2011's Biggest Losers

The year 2011 has shaped up to be a challenging one for stock investors. While high-quality bonds have notched solid returns, the S&P 500 index is in negative territory for the year to date through Dec. 19. Meanwhile, most actively managed equity funds have lost even more. International stocks, buffeted by the debt crisis in the eurozone, the natural disaster in Japan, and concerns about a slowdown in key emerging markets, are bringing up the rear.

Given that many fund investors are apt to see red when they receive their year-end statements, we decided to take a look at which funds and fund types had been hardest-hit. Nichelike sector and specialty funds, as well as exotic offerings that use leverage, usually jump to the top of any list of best and worst performers. However, these funds aren't widely owned and are therefore usually of limited interest to mainstream investors. Therefore, using our  Premium Fund Screener we sought to examine widely held funds--those with $5 billion in assets or more. Because many stock funds look poised to land in negative territory for the year, we screened for funds whose losses have been particularly severe at 15% or greater during the past year.

Not surprisingly, given the recent travails of foreign markets, foreign-stock funds of all types dominate the list, with emerging-markets-heavy portfolios incurring some of the largest losses. (Of the $5 billion-plus club,  Janus Overseas (JNOSX) was the biggest loser by a mile.) Yet a small smattering of domestic-stock funds also made our laggard list. Here's an overview of a few selected funds; click  here to view the complete screen.

 Fairholme (FAIRX)
Regular Morningstar.com readers have probably been following this fund's riches-to-rags story: After generating a nearly unbroken string of top-quartile results from 2000 through 2010 and winning Morningstar's Fund Manager of the decade, Fairholme's Bruce Berkowitz had a bad year of nearly epic proportions in 2011. Most of the stocks in this financials-heavy portfolio have suffered losses ranging from bad to horrible, and Berkowitz has had to spend down his once-robust cash cushion to pay off departing shareholders. In his recent Analyst Report, Morningstar's Kevin McDevitt notes that he still has conviction in Berkowitz and the process he uses, though McDevitt acknowledges that the lightened cash stake provides less of a performance buffer than the fund once had.

 Janus Overseas (JNOSX) 
This fund's many risks came home to roost in 2011: Its above-average emerging-markets stake and emphasis on smaller stocks were painful in a market environment that favored blue chips from developed markets. Even the fund's U.S. holdings--which might have helped hold performance aloft--are struggling turnaround plays such as  Delta Airlines (DAL) and Ford. Morningstar analyst Greg Carlson notes that such performance downturns pockmark the fund's fine long-term record and also points out that the fund has historically done a good job regrouping from its periodic slumps. Nonetheless, it's safe to say the fund is best held alongside a more conventional foreign-stock offering that will provide exposure to blue chips from developed markets.

 Vanguard Emerging Markets Stock (VEIEX)
The aforementioned funds are all active offerings that could've--at least theoretically--sought cover from the market's recent turbulence. But this index fund's painful results during the past year illustrate that investors in pure emerging-markets funds have had nowhere to hide. As Morningstar senior analyst Gregg Wolper notes in his recent report, China has suffered from worries over slowing growth and rising inflation, while the Brazilian market has struggled owing to growth worries as well as the ushering in of a new government. The performance downturn has no doubt been a cold bucket of water for new investors lured by the emerging-markets growth story as well as very strong returns in 2009 and 2010. Still, Wolper believes this fund has a lot to recommend it, including low costs and accurate tracking of its MSCI Emerging Markets Index benchmark.