Elephant-Sized Mutual Funds Slow to Adapt But Steady
Would you rather follow an elephant or a jackrabbit into the stock market?
Elephant-size stock mutual funds trumpet loudly and leave big footprints but often trail the more agile smaller funds that can hop around swiftly with the trends.
Nonetheless, these behemoths remain core components in an individual's portfolio because reliability and brand-name holdings keep conservative investors coming back for more. They fit especially well in retirement accounts left alone to grow.
"It is easier to build a good track record when a fund's assets are small, so a large fund with a good record is really something to remember," said
The growth fund has been managed for over two decades by the somewhat contrarian investor
"Danoff will take moderate risks to beat the stock index, but not huge risks because that's not what his investors expect," explained Salzinger. "The huge stock funds aren't going to set the world on fire, but there aren't too many ways for investors to get hurt, and doing 'average' in these financial markets is actually pretty good."
Its primary holdings are familiar:
There are pros and cons to the biggest stock funds.
"There is a lot of research available on the largest funds, and you can easily keep up on the banter that surrounds them," noted
The cons include the fact that it becomes difficult for the manager of a large fund with billions of dollars in assets to change direction quickly, he said. When there's bad news, it becomes difficult to unload a stock quickly because selling would drive down the entire market. The result is that the very large funds usually have a hard time differentiating themselves from their benchmark index.
"The overall market has a greater effect on the large stock funds rather than stock-picking does because they are fairly limited in how far they can go outside their benchmark," said Tjornehoj.
Some of the giants are index funds, such as the broad-based
"Performance over the past three years of the biggest funds has been decent, if unexciting," said
The roller-coaster ride that wound up producing a 1 percent three-year return illustrates the resilience of these big funds, he said.
"It is true that there is a limit as to how nimble these funds can be, since I seriously doubt that any of them have less than 100 holdings," said Kinnel. "By definition, they must have a lot of holdings and a sizeable amount will be large-cap stocks."
Looking overseas, the
Its major portfolio holdings are
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