It isn't easy managing a big mutual fund these days.
Of the 100 biggest actively managed U.S. stock funds that measure themselves against the Standard & Poor's 500 stock index, 71 have underperformed the benchmark's 34.82% loss year-to-date through Oct. 28.
By comparison, only 36 funds lagged the index's 0.25% drop over the trailing five-year period, according to Chicago-based Morningstar Inc.
The 71 laggards have nearly $781 billion in assets and account for 56.7% of all assets on the list of 100 funds.
Fidelity Investments was the biggest loser — with 14 funds lagging the index this year.
The $62.8 billion Contrafund (FCNTX), for example, has lost 36.8% through Oct 28, nearly two percentage points more than the S&P 500. The $28.6 billion Magellan Fund (FMAGX), meanwhile, was down 49.6%, nearly 15 percentage points more than the index.
"Nine to 10 months is a short time to assess properly a fund's performance," said Vincent Loporchio, a spokesman for Boston-based Fidelity. "This is even more relevant in the type of market environment we have seen so far this year."
Indeed, "the challenge for managers was in part the global events," said James Lowell, editor of Fidelity Investor, an independent investment newsletter in Needham, Mass. "It was not hard for a manager to get caught."
COLD COMFORT
That, of course, is cold comfort to investors in those funds.
"Whether or not a manager ought to be able to better defend a fund, I would have expected them to get more defensive than they did more quickly," Mr. Lowell said of the Fidelity funds. "Shareholders pay a fee to be able to outperform a specific benchmark," he said.
To be sure, Fidelity has lots of company on the list of trailing funds.
Legg Mason Opportunity Trust (LMOPX), which has $3.2 billion in assets, trailed the S&P 500 by a whopping 25 percentage points to post a 60% loss through Oct. 28. The fund is run by Baltimore-based Legg Mason Funds Management Inc.
The $10.4 billion Calamos Growth Fund (CVGRX), which is run by Calamos Asset Management Inc. of Naperville, Ill., dropped 48.8%, nearly 14 percentage points more than the index. Then there's the
T. Rowe Price New Era Fund (PRNEX), which has $5.2 billion in assets and is run by Baltimore-based
T. Rowe Price Group. It lagged the index by more than 16 percentage points to lose 50.85%.
Few investors are smiling about double-digit losses — even if those losses represent an improvement over the benchmark, said John Belluardo, president of Stewardship Financial Services Inc. of Tarrytown, N.Y.
"If the S&P is down 40% and a large-cap fund is down 43%, in the greater scheme of things, the fund is underperforming by 3 [percentage points] and I don't think anyone is sweating that out," said Mr. Belluardo, whose firm does not manage assets.
If anything, the relative underperformance of so many well-known actively managed funds could steer some investors into less expensive passively managed funds, said Jean Keener, president of Keener Financial Planning in Keller, Texas, which also does not manage assets.
"I think it's made people a lot more receptive towards more of an index strategy," Ms. Keener said. "I have at least one client already who has changed [his] mind and I have started transitioning [the] portfolio more towards index funds."
OUTPERFORMANCE
On the other hand, 29 of the 100 biggest actively managed U.S. stock funds that compete against the S&P 500 outperformed that index.
For example, the $9.5 billion GMO U.S. Quality Equity III Fund (GQETX), managed by GMO LLC of Boston, lost 23.38%, beating the S&P 500 by 11.44 percentage points. And the $5.40 billion Aim Charter Fund (CHTRX), managed by the Atlanta-based
Invesco Aim, returned -25.96%, outpacing the index by 8.86 percentage points.
"The volatility that we have seen is tremendous," said Dan Frascarelli, portfolio manager of the
Lord Abbett Large-Cap Core Fund (LARBX). "You have to take a long-term view in thinking about how the environment will change."
The $822 million fund, which is run by
Lord Abbett & Co. LLC of Jersey City, N.J., was down 26.93% through Nov. 3, beating the S&P 500 index by 6.08 percentage points.
Many professional stock pickers made the mistake of thinking that the market had hit bottom in the fall of 2007 and that the United States would enter a
recession while Europe and Asia wouldn't, Mr. Frascarelli said.
"We didn't believe that and stayed defensive," he said.
Many money managers also failed to assess the risks associated with the current stock market.
"There are hidden risks that you may not be aware of," said Tom Luddy, managing director and portfolio manager of the $3.3 billion JPMorgan U.S. Large Cap Core Plus Fund (JLCAX), which dropped 33.32% through Oct. 28, beating the S&P 500 by 1.5 percentage points. "You need to think about more of the 'what if' scenario-type questions."
E-mail Sue Asci at [email protected].
