5 Big Funds to Reconsider

Editor's note: With the markets offering up a seemingly endless parade of surprises, investors are looking for mutual-fund managers who can handle anything thrown at them. In this special report, SmartMoney focuses on funds run by managers who have successfully navigated years worth of market euphoria and panic -- and helped keep investors ahead. We highlight funds that specialize in five categories: large company stocks, foreign stocks, global investments, balanced investments and real estate.

Investors have a lot of money tied up in these funds, but should they? 

Fidelity Equity Income (FEQIX)
Assets: $18.7 billion

It’s one of the 50th biggest mutual funds in the country and a staple of many 401k plans. Some say it is also the epitome of average performance. The fund focuses on large value stocks, and had a good run in 2009 betting on financial names. But the fund, over 10 years, almost identically tracks the Morningstar index of large value stocks. Nearly 60 percent of its peers performed better over the past decade. In a category with more than 1,100 funds, there are plenty of better-performing options. Fidelity spokeswoman Sophie Launay says Equity Income beat its respective benchmark over the past one and three years and, in 2009, beat more 90 percent of its peers as ranked by Lipper.

Vanguard Total Bond Market Index (VBMFX)
Assets: $61.6 billion

The fund does its job of tracking an index of U.S. government and corporate bonds and doing it at a low cost to investors. It’s the asset class that’s a potential problem. Thanks to inflation and an immense jump in the amount of debt issued across the country, bonds, as an asset class, bonds have become risky, according to many pros. Some experts say that if you want to own bonds, having an actively managed fund would be better in this environment. Vanguard argues that a low-cost broad based index fund is the best option. “It’s giving you a return at a very reasonable price,” says Greg Davis, the firm’s head of bond indexing.

Fidelity Magellan (FMAGX)
Assets: $24.8 billion

At one point this well-known fund had more than $100 billion in it. It’s a shell of its former glory but it remains a high-profile fund. The fund’s return has lagged behind the S&P 500 since 2003. It soared in 2009 but that still didn’t make up for a gruesome 2008, when it lost almost 50 percent. And recently manager Harry Lange took an unorthodox step for a manager of a growth fund – starting a big position in gold-related stocks. “Harry tries to find opportunities where they exist and is not wedded to a particular style,” says Fidelity’s Launay. Gold stocks, she says, can be an efficient hedge against inflation and a falling stock market along with being a beneficiary from more demand for gold worldwide.

AIM Constellation (CSCTX)
Assets: $3.2 billion

A $10,000 investment made at the start of the decade in this large cap growth fund would be worth about $6,000 now. Over that time, fund’s performance trailed the broader market, its benchmark and the majority of its peers. And the majority of the shares carry an upfront sales charge, meaning the fund company takes money off the top of any investment. Invesco Aim spokesman Ivy McLemore says the fund’s fees are competitive and that the fund’s current bias toward high-quality, large cap stocks has the potential to produce “competitive returns over the long term.”

Putnam New Opportunities (PNOPX)
Assets: $2.6 billion

Investors might not mind paying sales fees and high annual expenses if a fund performs. But critics say investors get the fees, but not the performance, with this fund. This large cap growth fund has essentially tracked the S&P 500 since the bottom of the bear market in 2002. But it charges a 5.75 percent sales charge and a 1.3 percent annual fee. It’s ranked in the bottom 10 percent of all large cap growth funds Morningstar tracks. Putnam spokeswoman Laura McNamara says the company overhauled the fund in late 2008, naming Gerry Moore the sole manager and also increased portfolio manager accountability.

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