That poses a problem for many 401(k) plan sponsors who
have to choose which ones to include in their plans and
guide their participants toward smart investments.
To help make that selection, Merrill Lynch and the Maverick Advisor newsletter have sought to find the best and worst performing funds in the US.
The Good News
When Merrill Lynch sought to find the top performing fund groups nationally, they zeroed in on the value-oriented manager American Funds as its top choice overall among mutual fund families.
Merrill ranked funds based on manager skill, rather than style, size or asset type. Funds were not categorized and ranked by manager style – growth or blend – alone.
When determining fund family ranks, Merrill analysts created customized benchmark indexes for every fund within a particular family. They then assessed that portfolio’s performance against that benchmark on a monthly basis. Fund groups that consistently outperformed the benchmarks moved to the top of the list.
To determine a fund group’s overall risk, Merrill then had to isolate why that over-performance was achieved – through security selection, asset allocation or timing.
And The Winner Is…
Some fund families were noted in individual categories. The overall best performing family of US equity stocks was Eaton Vance, while American came in second.
Merrill gave an “overall” rating to fund groups that provided a variety of funds to create a “well-rounded portfolio” in that same family. To meet this criterion, the fund group must provide at least three US equity, one US fixed-income, one municipal bond, and one general international equity fund.
The top ranking fund in the municipal bond category was the Calvert/Acacia Group, with American again picking up the second place spot.
In the fixed-income category, Franklin Templeton (BEN) ranked best, followed by the Mainstay funds.
Evergreen Investment Services was named top performer in the international rankings with two region-specific funds investing in emerging markets and Latin America, and a general international fund. Morgan Stanley Asset Management ranked second in this category.
The Best of …
Merrill Lynch’s top 10 fund families overall were:
- American Funds
- Fidelity Mgmt. & Research Co.
- Goldman Sachs & Co/GSAM
- Mainstay Funds
- Key Asset Management Inc.
- Banc One Investment Adv.
- Janus Capital Corp.
- SSB Citi Fund Management Inc.
- Franklin Templeton Investments
- Wells Fargo Bank
…The Worst of Funds
Want to steer your 401(k) participants away from
under-performing mutual funds, but don’t know how?
Refer them to the Maverick Advisor newsletter where editor Doug Fabian has tracked down 377 under-performing mutual funds representing $350 billion in assets as of the end of September.
While that may seem like a lot of funds, that number is down from 449 funds with $658 billion in assets that were targeted during the first quarter.
To get on the list of under-performers, Fabian chose funds with a five-year track record. A fund must then under-perform its peer group average for all three of the one-, three- and five-year periods.
Then, to lock onto the worst funds, Fabian’s group
screened for funds that in their first-year could
under-perform their peers by as much as 25 percent. Then,
they could understandably make the Lemon List.
The following is a list of the funds that have been added to the Lemon List this quarter, starting with the worst performer based on asset size. The 10 worst performers of the third-quarter according to the Maverick Newsletter are:
- AXP Blue Chip Advantage
- Fidelity Advanced Growth Opportunity
- Fidelity Destiny II
- MFS Emerging Growth
- Oppenheimer Main: Growth and Income
- Putnam New Opportunity
- Putnam Voyager
- Scudder Growth and Income
- T. Rowe Price New Horizon
- Vanguard Total Stock Market Index
The complete Lemon List is available at
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