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.

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

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.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

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

Related Articles
  1. Investing

    Build a Retirement Portfolio for a Different World

    When it comes to retirement rules of thumb, the financial industry is experiencing new guidelines and the new rules for navigating retirement.
  2. Investing

    Automating Your 401(k) is Easier Than You Think

    If you like automation, you should check out these features that many 401(k) plans offer.
  3. Investing Basics

    Explaining Delivery Versus Payment

    Delivery versus payment is a common procedure for settling the exchange of securities.
  4. Mutual Funds & ETFs

    5 Mutual Funds that Hold Berkshire Hathaway Stock

    Discover the top five mutual funds most heavily weighted with Berkshire Hathaway stock, and the percentage of their assets dedicated to BRK.
  5. Mutual Funds & ETFs

    4 Mutual Funds that Hold Tesla Stock

    Obtain information on the four mutual funds that have significant allocations to Tesla Motors, Inc. in their major portfolio holdings.
  6. Mutual Funds & ETFs

    Comparing ETFs Vs. Mutual Funds For Tax Efficiency

    Explore a comparison of mutual funds and exchange-traded funds, or ETFs, and learn what makes ETFs a significantly more tax-efficient investment.
  7. Mutual Funds & ETFs

    4 Mutual Funds that Hold Apple Stock

    Discover mutual funds offering the most substantial percentage of holdings in Apple, Inc. stock that investors can use to get significant exposure to Apple.
  8. Mutual Funds & ETFs

    Top 5 Precious Metals Mutual Funds

    Obtain information and analysis of some of the top-rated and most popular mutual funds that offer investors exposure to the precious metals industry.
  9. Insurance

    Whole or Term Life Insurance: Which Is Better?

    Learn the difference between term life insurance and whole life insurance. Understand when it is beneficial to buy each type of life insurance.
  10. Mutual Funds & ETFs

    Top 5 Bear Market Mutual Funds

    Discover five bear market mutual funds that investors can turn to for generating maximum capital appreciation during a bear market.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Series 6

    A securities license entitling the holder to register as a limited ...
  3. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  4. Dividend

    A distribution of a portion of a company's earnings, decided ...
  5. Sharpe Ratio

    A ratio developed by Nobel laureate William F. Sharpe to measure ...
  6. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
RELATED FAQS
  1. How do dividends affect net asset value (NAV) in mutual funds?

    Distribution of dividends reduces the net asset value (NAV) of mutual fund shares. However, this doesn't mean that fund investors ... Read Full Answer >>
  2. Are mutual funds considered retirement accounts?

    Unlike a 401(k) or Individual Retirement Account (IRA), mutual funds are not classified as retirement accounts. Employers ... Read Full Answer >>
  3. Do mutual funds invest only in stocks?

    Mutual funds invest in stocks, but certain types also invest in government and corporate bonds. Stocks are subject to the ... Read Full Answer >>
  4. Why are mutual funds not FDIC-insured?

    Mutual funds are not Federal Deposit Insurance Corporation (FDIC)-insured because money invested in funds are not considered ... Read Full Answer >>
  5. Can mutual funds invest in commodities?

    Mutual funds can invest in commodities. In fact, mutual funds may provide a better way for investors to gain exposure to ... Read Full Answer >>
  6. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!