2011 In Review – How Did The Biggest Mutual Funds Perform?

By Stephen D. Simpson, CFA | December 28, 2011 AAA

Love them, hate them, embrace them or ignore them, mutual funds are a huge business; a multi-trillion dollar business. It is frankly the rare investor that doesn't hold at least one mutual fund; check the cash in your brokerage account, it's probably a money market mutual fund. It's far and away the most common investment vehicle in most investors' portfolios.

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With that in mind, it is worth investigating how the biggest funds performed for 2011.

The $100 Billion Club
Although the PIMCO Total Return fund has an unthinkably high AUM at over $240 billion, the fund nevertheless managed a positive return for the year; as of this writing, the total return for 2011 is just above 3%.

To give a sense of just how large PIMCO Total Return is, the second-largest fund lags its AUM by almost $80 billion. It wasn't a great year for the Vanguard Total Stock Market Index Fund, with a year-to-date performance of negative 3%. Although many of this funds largest holdings, including Exxon Mobil (NYSE:XOM), Apple (Nasdaq:AAPL) and IBM (NYSE:IBM), were actually quite strong this year, the fund held only about 7% of its assets in those stocks. There's a lesson there; while diversification may reduce risk, it can also sap the strength of top performers. (For related reading, see Getting To Know Hedge-Like Failures.)

Also in the $100 billion club, the American Funds Growth Fund of America saw the largest outflows of any fund over the last 12 months, but still manages nearly $130 billion in assets. Performance no doubt helped fuel the flight; the fund rebounded decently in 2009 and 2010 after a terrible 2008, but year-to-date performance this year has seen worse than an 8% loss.

Last and not least are a pair of funds from Vanguard. Vanguard 500 Index Investor is down about 2% for the year, while Vanguard Total Bond Market Investor technically falls just short of the $100 billion level by about $300 million, but delivered nearly 8% positive returns this year.

A Sampling of Other Giants
Foreign stocks were an extremely difficult place to make money in 2011, and the American Funds EuroPacific Growth fund has seen nearly a negative 17% total return this year. Along similar lines, the Vanguard Emerging Markets Stock Index fund has seen a loss worse than 21% so far this year.

The well known Fidelity Contrafund had a rough go of it as well this year, losing more than 3% so far. The Templeton Global Bond fund did scarcely better, having lost about 3% as well so far this year.

The Bottom Line
It may tempting to look at these performance figures and conclude that huge funds are structurally incapable of outperforming. That sounds convincing and it's not hard to imagine why that may be true, but the numbers just don't bear it out. The top quartile of mutual fund performance this year ends at about negative 1%, while the second quartile cuts off just before an 8% loss. That means that two-thirds of the large funds discussed here were at least in the top half of all mutual fund performers for the year. (For related reading, see Is Your Mutual Fund Safe?)

Ultimately, the large funds on the same boat as their smaller brethren. If the target markets and strategies are in favor, they'll do alright. If it's a difficult year, they'll struggle to produce gains. In other words, funds both big and small, need a healthy market for healthy returns and 2011 was certainly a challenging year in that regard.

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At the time of writing, Stephen Simpson did not own shares in any of the companies mentioned in this article.

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