Friday, January 25, 2013

How Important Is Family, Really?

When it comes to mutual fund performance, investors often think of stars like value manager Bill Nygren or bond gurus like Michael Hasenstab and Jeffrey Gundlach. Such figures are the public faces of the mutual fund industry, for good or ill-filling investment conference halls, holding court on cable finance shows and facing shareholder wrath when they stumble. (Pimco's bond king Bill Gross, after his missed call on Treasury prices in 2011, even felt compelled to write a letter of apology to investors.)

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But while the focus, both inside and outside the industry, has long been on the batting averages of individual sluggers, what about the teams they play for? Let's face it, for the typical investor, all those big-league clubs -- venerable names such as T. Rowe Price, Fidelity and Franklin Templeton -- meld into a blur. And yet look more closely at the numbers, and the actual performances of these and other major fund companies may surprise you.

Family pedigree, it would appear, doesn't count for much. Indeed, only two of the 10 largest mutual fund clans -- bond-focused Pimco and Vanguard, known primarily for its benchmark-hugging index funds -- managed to finish in the black for 2011. (Pimco's six dozen funds averaged a 3.6 percent return, despite Gross's admitted slipup.) The 10 giants, as a group, posted returns of negative 1 percent during the period, even as Standard & Poor's 500 returned about 2 percent and the Dow Jones Industrial Average returned more than 8 percent, including dividends. But the gap between the best-performing firm (Pimco) and the laggard (Dodge & Cox) wasn't small. An investor staking $10,000 with the former firm's funds would end up with $930 more than an investor who bet on the latter.

To be sure, the families' differing investment styles mean investors can learn only so much from rankings: Dodge & Cox's stock market focus probably hurt it vis- -vis Pimco last year. (Dodge & Cox declined to comment but said in its semiannual report for the stock fund that its "ability to stay the course" was a key factor behind its strong 10- and 20-year results.) Even so, there's a message to be gleaned, experts say. Fund firms do a disservice to investors when they suggest they can offer a fund that's best-in-class for every investing style and category, says Geoff Bobroff, an independent investment-industry consultant in East Greenwich, R.I. "There's a belief among fund families that they have to be everything to everybody" he says. "It's unrealistic."

Team Troubles
Fund Family Assets Under Mgmt. (bil.) 2011 Return (%)
Vanguard$1,4291.5
Fidelity Investments973-3.5
American Funds873-0.3
Pimco4973.6
T. Rowe Price349-1.4
Franklin Templeton348-1.1
John Hancock199-3.4
Columbia163-2.0
Oppenheimer143-1.1
Dodge & Cox113-5.7

Assets as of 11/30/11.Source: Morningstar

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