Wealth destroyers: These 10 funds lost the most last year

Dollars & Sense

February 09, 2003|By Russel Kinnel | Russel Kinnel,MORNINGSTAR.COM

Who were the biggest wealth-destroyers of 2002? Some of you asked that after I wrote about last year's biggest wealth-creating funds. I do take requests, so here, then, are the funds that suffered the largest dollar-value decreases in assets after taking cash flows out of the equation.

It's a depressing thought, and Ralph Wanger, manager of Liberty Acorn (LACAX) - which, by the way, was only No. 97 on the list - expressed it quite well in his third-quarter shareholder report, titled The Vanity of the Bonfire:

"The terrible stock market has cost us a lot of money. In the first nine months of this year, Liberty Acorn Fund alone saw at least the temporary disappearance of about $956 million in assets. That is an inconceivably large amount of money."

Here's the list of funds that had the biggest bonfires. You'll notice it's a pretty respectable list. The reason is simple: In order to get on the list, a fund had to have billions of dollars invested to begin with, and the only way to attract billions is with long-term performance. In fact, all the funds on this list have produced excellent long-term numbers. So, this isn't a sell list. In fact, some of these offerings are actually quite good.

1. Fidelity Magellan (FMAGX). Bonfire size: $18 billion. It was a lousy year for Magellan, although its 23.7 percent loss in 2002 was only 1.6 percentage points worse than the S&P 500's. Manager Bob Stansky was right to underweight tech stocks relative to the index, but he was a little too bullish on the prospects for an economic recovery and a market recovery. Top 10 holdings Viacom's and Morgan Stanley's stock losses reflected the continued weakness in both areas. Despite those mistakes, Stansky's five-year returns are better than 75 percent of large-blend funds and about 1 percentage point per year better than the S&P 500.

2. Vanguard 500 Index (VFINX) Bonfire size: $16 billion. In 2002, this fund did just what you want an index fund to do. It produced second-quartile returns relative to its peer group and tracked its benchmark pretty closely. Unfortunately, in 2002, tracking the benchmark and beating your peers still meant an unpleasant 22.1 percent loss. If you just bought this fund in the past couple of years, don't panic. A good index fund will reward your patience, and I'm sure this one will do the job.

3. Fidelity Growth & Income (FGRIX). Bonfire size: $6 billion. Manager Steve Kaye actually had a great year. The fund's 18 percent loss bested 85 percent of the large-blend category. Kaye has protected shareholders from much worse losses in the bear market because he didn't lose sight of the importance of valuations during the Internet bubble. In 2002, he remained shy of tech, and he also boosted performance by scooping up bargains near the smaller end of the large-cap stock universe.

4. Janus Worldwide (JAWWX). Bonfire size: $5.2 billion. Ugh. This fund still has a good long-term record, but it suffered a pretty ugly year. Co-managers Helen Young Hayes and Laurence Chang lagged behind their peer group by 6.2 percentage points and the MSCI EAFE index by 10.1 percentage points. You wouldn't expect big returns from this fund in a value year like 2002, but it was still disappointing.

5. Putnam Voyager A (PVOYX). Bonfire size: $4.2 billion. This fund's 26.5 percent loss was actually a little better than that of the typical large-growth fund. However, at midyear this fund shifted strategies from a blend/growth mix to become more of a pure large-growth offering. Thus, it might do worse the next time growth stocks get battered. Lead manager Brian O'Toole, who came from Citigroup, took over in June. He invests in a mix of steady growers and higher-risk names.

6. Vanguard Windsor II (VWNFX). Bonfire size: $3.8 billion. This fund's 16.9 percent loss landed in the top third of large-value fund returns. Lead manager James Barrow has thus outperformed his peers in eight of the last nine years. Barrow executes his plain-vanilla strategy well. He looks for solid businesses trading at low prices, preferably with healthy dividends. The fund made this list mainly because Barrow's work has attracted a lot of investors.

7. Fidelity Equity-Income (FEQIX). Bonfire size: $3.7 billion. This fund lost 17.2 percent. Again, that's pretty good for a large-value fund. This is one of Fidelity's quieter funds. Manager Stephen Petersen runs a dividend-focused portfolio that's broadly diversified among sectors and stocks, so nothing exciting ever happens here. The fund has landed in its category's second quartile in six of the past seven years.

8. Putnam Fund for Growth & Income (PGRWX). Bonfire size: $3.6 billion. This fund's 19.1 percent loss was just a touch below the large-value average. That seems to be the norm here. Returns have landed in the third quartile for four straight years. The fund's five-year returns are also just a bit below average, and the 10-year returns are a bit above.

9. Vanguard Total Stock Market Index (VTSMX). Bonfire size: $3.5 billion. The story here is pretty similar to that at Vanguard 500. This fund's 21 percent loss landed in the top third of the large-blend category. It beat Vanguard 500 by about 1 percentage point because Total Stock Market Index has greater exposure to mid-caps, and last year's market was biased to the small-cap end.

10. Janus Twenty (JAVLX) . Bonfire size: $3.4 billion. A timely move into cash helped to stanch the bleeding at this fund. Its 24 percent loss bested three-quarters of the large-growth group. That's a nice improvement over the prior two years. By New Year's Day, manager Scott Schoelzel had trimmed his cash and bond stake from 22 percent to 14 percent.

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