The 10 Biggest Wealth-Creating Funds of 2002

If you want to know which funds have the highest returns this year, you can go to our Fund Quickrank tool, select year-to-date returns, and voila. You’ll see that the tiny Gabelli Gold Fund (GOLDX) is near the top of the rankings with a return of about 90% for 2002. Not bad. But, of course, no one owns it. It began the year with just $15 million in assets and now it's up to $84 million. The leaders' lists for calendar-year performance are always full of volatile little funds like this that would make lousy core holdings.

A more intriguing question is, "Which funds made the most money for their shareholders?" Answering that question gives you a sense for the funds that actually made investors wealthier. These are likely to be core funds that have attracted assets with good long-term performance and have kept shareholders around by giving them a relatively smooth ride. I took a look at this statistic by individual share classes. This ranking tends to understate the impact of funds with multiple share classes, but combining them can lead to other distortions.

1.  PIMCO Total Return Instl  (PTTRX)
Money made: $3.6 billion. This fund hit some rough spots when some airline and communications bonds got whacked. But one of the good things about running a huge bond fund is that you have to diversify into hundreds of names, and no one company is likely to burn you too badly. Thus, Bill Gross and his crew overcame those issues with some good sector moves to produce yet another year of outstanding returns.

2.  Vanguard GNMA  (VFIIX)
Money made: $1.7 billion. Manager Paul Kaplan has ably guided this fund to strong returns this year and over the long haul, too. He avoids exotic mortgage-backed securities in order to keep risk in check. Instead, he simply works to manage prepayment risk and interest-rate risk while letting the fund’s low costs do the rest. Falling interest rates boosted returns a bit, but this fund’s cost advantage will help its shareholders to make money year in and year out. 

3.  Vanguard Total Bond Market Index (VBMFX)
Money made: $1.2 billion. Though this fund has been taken to task for lagging its index, it still made a nice chunk of change for shareholders. Falling interest rates do wonders for the fund. Managers Ken Volpert and Ian MacKinnon invest a larger piece of the fund in corporates than does the Lehman Brothers Aggregate that the fund is supposed to track. Their reasoning is that corporates will boost returns, but this year they hurt as investors rushed to the safety of government bonds amid the WorldCom scandal. 

4.  Franklin California Tax-Free Income (FKTFX)
Money made: $873 million. Oddly, this fund is enduring its worst year since 1995. The fund holds a little more lower-quality debt than most California funds and it has a little less interest-rate exposure (as measured by duration) than its peers. In short, it was on the wrong side of both trends this year. However, I’d be less concerned by a year like this--when its style was out of favor--than a year in which it underperforms because of poor execution.

5.  Franklin U.S. Government Securities A  (FKUSX)
Money made: $611 million. Like Vanguard GNMA, this fund is a plain-vanilla GNMA offering. Manager Jack Lemein avoids interest-rate calls and instead buys Ginnie Maes and holds on. It’s a nice basic fund for cautious investors.

6.  Vanguard Total Bond Market Index Institutional  (VBTIX)
Money made: $557 million. See number 3. 

7.  Vanguard Intermediate-Term Tax-Exempt (VWITX)
Money made: $507 million. This fund is suffering through an off year, too. Managers Ian MacKinnon and Christopher Ryon were too cautious with their interest-rate positioning. In addition, they had a little exposure to the airline industry. Still, this fund has delivered the goods over the long haul. Its returns are in the top quartile for the trailing five- and 10-year periods.

8.  Vanguard GNMA Admiral  (VFIJX)
Money made: $481 million. See number 2.

9.  Fidelity Intermediate Bond (FTHRX)
Money made: $481 million. The story is similar at Fidelity’s taxable-bond funds. No macro calls, just bond selection. This fund had the added advantage of having a longer duration than its peers, but it has also delivered excellent long-term returns.

10.  Fidelity Spartan Municipal Income (FHIGX)
Money made: $472 million. As I wrote in my column about Fixed-Income Managers of the Year, Fidelity has built one of the best muni shops around. It focuses exclusively on issue selection and lets its moderate expenses do the rest. Manager Christine Thompson has put up monster returns of 9.54% for the year and 5.98% annualized for the trailing five years--performances that place the fund in the top 5% of its category for both time periods.