Big stock funds tend to serve investors well

August 03, 1994|By Andrew Leckey | Andrew Leckey,Tribune Media Services

No excuses.

The nation's biggest stock funds don't have to apologize to anyone for having billions of dollars in assets.

Perhaps they can't turn on a dime like smaller funds. They may not make the top of the list of best-performing funds in a given quarter.

But make no mistake. They're where the money is, thanks to the longevity of their returns and the trust of their shareholders. They get undivided attention from their fund families and are assigned the finest portfolio managers their formidable assets can buy.

Though a manager may be less likely to swing for the fences when billions of dollars are at stake, he'll certainly do his homework before stepping to the plate.

In the last 12 months, the best-performing giant fund was $11.3 billion-asset Vanguard Windsor, up 12.30 percent as contrarian portfolio manager John Neff scored big with bank and insurance stocks. Neff, who recently notched his 30th year as manager, bets on undervalued favorites and doesn't seek diversity in his 60 or so stock names.

"With bank stocks currently 22 percent of assets, we're sticking our necks out," said Neff, 63. "We're not some big index fund trying to replicate the market, and our top 10

holdings make up 40 percent of assets."

While Neff has managed to beat the S&P 500 by an average 3.7 percent annually over the years, his hunches failed in 1989 and 1990. Returns suffered. Largest holdings now are Citicorp, Aluminum Co. of America, Aetna Life and CIGNA. The legion of Windsor shareholders are long-termers. That's because, to avoid massive inflows or outflows, the fund has been closed to new investors since 1985, except for four months in early 1989.

Other big funds consider their role more basic.

"We're an ideal core holding, and our 900,000 shareholders realize that while we're rarely among the top five performing funds, we do offer consistency," said Stephen Hartwell, chairman of the $12.4 billion Washington Mutual Investors Fund, with 9.07 percent annualized return over five years.

Begun in 1953, Washington Mutual uses a team to choose its low-risk portfolio of 115 stock names. Du Pont, GTE, Bell Atlantic and Schering-Plough are major holdings.


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Investors buy big funds because they're best-known and friends and advisers recommend them. As assets balloon, strategies can turn cautious.

"There's a tendency for the very largest stock funds to become more value-oriented and conservative, with less turnover because they can't make quick moves like a small fund," observed A. Michael Lipper, president of fund-tracking firm Lipper Analytical Services.

Their ideal investor is willing to stay awhile. There is often good reason.

"The majority of the 10 largest stock funds served their investors well by beating the overall market for the last year," noted Don Phillips, publisher of the Morningstar Mutual Funds investment advisory, which compiled data used in this column. Still, just being big isn't reason to invest, since funds vary in strategy and return.

Biggest stock funds ranked by assets are:

* Fidelity Magellan, Boston; $34.9 billion; manager, Jeffrey Vinik; 3 percent load (initial sales charge); five-year annualized return, 13.57 percent; one-year total return, 5.78 percent.

* Investment Co. of America, Los Angeles; $19 billion; team manage

ment; 5.75 percent load for up to $50,000; five-year annualized return, 10.23 percent; one-year total return, 6.36 percent.

* Washington Mutual Investors, Washington, D.C.; $12.4 billion; management team headed by Hartwell; 5.75 percent load for up to $50,000; five-year annualized return, 9.07 percent; one-year total return, 3.58 percent.

* Vanguard Windsor, Valley Forge, Pa.; $11.3 billion; manager, Neff; closed; five-year annualized re

turn, 9.20 percent; one-year total return, 12.30 percent.

* Janus, Denver; $9.34 billion; manager, James Craig; no load; five-year annualized return, 12.45 percent; one-year total return, 4.79 percent.

* Twentieth Century Ultra Investors, Kansas City, Mo.; $9.3 billion; team management; no load; five-year annualized return, 18.17 percent; one-year total return, 2.01 percent.

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