Selling Janus and Fidelity

Although the most extreme performances, good and bad, come from tiny funds, the best dramas are in the big funds. There are billions being made and lost. Most big funds are competently run and supported by big, smart staffs of analysts. Yet at the margins, some fund investors shift between them in stampede form. Performance is the driver and that means sometimes people are right to bail out--but sometimes it's a big mistake. Today, all the biggest sellers are value funds, while the funds suffering the biggest redemptions are growth funds. That would have been a good idea 18 months ago, but some folks like to drive with the rearview. So, here's my take on whether investors are justified in selling, listed in order of most redemptions suffered this year.

Fidelity Advisor Growth Opportunity (FAGOX)
Investors have yanked $2.7 billion out of this fund this year, according to Financial Research Corporation, because it switched from a hardcore value strategy to a growth-at-a-reasonable-price strategy almost exactly at the market top for growth. Ouch. The move came because George Vanderheiden retired and was replaced by Bettina Doulton who has more of a growth bias. Doulton hasn't covered herself in glory, but she did a bang-up job when she ran Fidelity Puritan (FPURX) and Fidelity Equity-Income II  (FEQTX). So, blame Fidelity not Doulton. Most investors who rode out the lean years in 1998 and 1999 probably wanted to stick with value and it's understandable that they'd be angry. On the other hand, if a large-blend fund fits your investment plan, you'd be making a mistake in selling. Verdict: Slightly justified.

Janus Worldwide 
What--are you nuts? Selling this fund is like selling Fidelity Magellan (FMAGX) back in 1987 because Peter Lynch underperformed during the crash. Helen Young Hayes has the best 10-year record of any world-stock fund manager. The second-place fund is a full percentage point behind. Yes, she and comanager Laurence Chang could have done a better job in avoiding disasters like JDS Uniphase (JDSU) and Nokia (NOK), but all managers make mistakes. Verdict: Unjustified.

Fidelity Contrafund  (FCNTX)
I might be annoyed, too. This could have been a much better year for Contrafund. With a tiny tech weighting, you'd expect it to be killing the S&P this year, but it's not. It got hammered early in the year when it had more in tech and it has also suffered from some weak stock picks. As a result, $1.5 billion has moved out. That said, over the longer haul the fund has done pretty well against the index and most large-growth funds. Manager Will Danoff does more trading in a big fund than I like, but the results have been good. Verdict: Unjustified.

AIM Value  
This is an odd one. It looks like investors are swapping this fund for AIM Basic Value . This fund lost $1.3 billion while its sibling sucked in $1.7 billion. The reason is that Basic Value is more value than Value. With more in lower-priced stocks, Basic Value is up 5.2% on the year while Value is down a harsh 9%. This fund topped out at well over $20 billion thanks to investors who thought this fund's great performance in 1999 didn't mean it would stink when value did well. If you mistakenly bought this thinking it was like Vanguard Windsor  (VWNDX), then you probably should bolt, but others who are leaving are just leaving one bandwagon for another. Verdict: Slightly justified.

Fidelity Magellan  (FMAGX)
While this fund's $1.3 billion in outflows sounds like a lot, that's a small amount for an $84 billion fund. I'd guess that most shareholders are satisfied and they certainly should be. Bob Stansky has done a killer job here. He's running a touch ahead of the S&P this year and that's pretty good for a growth-leaning manager. He has a healthy lead on the S&P 500 over the trailing three years and is just lagging it over the trailing five. That's quite good when you consider the mess he inherited. I give Stansky bonus points for not piling into tech during the first two legs of the sell-off. In the past, he took advantage of Nasdaq plunges to scoop up tech, but he clearly saw that the fundamentals were in far worse shape this time around. Verdict: Unjustified.

Poll Results
On Monday I asked which fund inequality you most wanted to see fixed. Not surprisingly, 52% of you said to fix the heinous capital-gains tax burden on fundholders. After that, 19% of you said you want to know how much money a manager has in his or her fund.