PIMCO Fund Family Has Excelled During Downturn
Andrew Leckey

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Family values really mean something for mutual fund families.

Investment returns can either keep investors loyal or have them running for the exits, and some fund families have performed better than others during the downturn.

While investors can choose any fund from any fund family they wish, they often keep much of their money with one family because their retirement plan requires it or they find it more convenient and cost-effective. Since they may switch among that fund family's offerings over time, the overall strength of its available offerings looms large.

The PIMCO fund family gets a gold star for insight and early detection of the housing and mortgage debacles, resulting in strong results throughout many of its funds over the past three years.

"PIMCO and the strength of its bond portfolios has really stood out as a perceived advantage for it during the downturn," noted Jeff Tjornehoj, senior research analyst with Lipper Inc. in Denver. "In addition, Bill Gross (PIMCO co-chief investment officer) is frequently in the news and trying to guide the administration in Washington."

While the average U.S. stock fund is up 13 percent and the average long-term bond fund up 10 percent this year, their respective two-year returns are a negative 18 percent and a gain of 2 percent, according to Lipper.

Mutual fund investors have been nervous, pulling $121 billion out of U.S. stock funds and $103 billion out of foreign stock funds in the past year, according to the Investment Company Institute trade group. Meanwhile, $58 billion flowed into bond funds.

"It's been an especially difficult time for fund companies concentrated in equities," said Tjornehoj. "Even though things look better this year than last, assets have been down just about everywhere."

The smallest fund families with only a few million dollars under management are "extremely vulnerable" right now, Tjornehoj said. The largest fund families seem equipped to weather the storm with deep research staffs uncovering investment opportunities, yet have a lot of infrastructure to support, he added.

"Since market timing is too hard of a game to play, dollar-cost averaging (investing a set amount regularly in a fund) is the best strategy to stick with in good and bad times," said Karen Dolan, director of fund analysis for Morningstar Inc. in Chicago. "Of course, you always want to be reassessing and making sure your funds are doing what you want them to do."

That also means monitoring what their fund families are doing.

Top fund families besides PIMCO in overall three-year performance of their funds, according to Morningstar research, are Janus, MFS Investment Management, T. Rowe Price and Vanguard:

-- Janus, known for bold growth funds, rebounded in the past three years from its poor performance in the previous bear market. It landed in the top one-fourth in all bond and stock asset classes. It has, however, had key manager changes that included its largest funds, Janus Twenty Fund and Janus Fund, a year ago.

-- MFS under chief investment officer Michael Roberge has expanded its research, consolidated similar funds and exerted greater discipline in how portfolios are run, Morningstar found. Improvement in stock, balanced funds and municipal funds resulted in 15 of its 20 largest funds ranking in the top one-fourth of their categories the past three years.

-- T. Rowe Price, known for lower-risk strategies designed to endure all types of market conditions, has had manager stability and strictly adhered to its investment style. Its bonds and domestic stocks have done exceptionally well. All of its 20 largest funds rank in the top half of their classes for the three-year period. T. Rowe Price Mid-Cap Growth Fund (RPMGX), Equity Income Fund (PRFDX) and High-Yield Fund (PRHYX) are noted by Morningstar as solid.

-- Vanguard Group, the king of low-cost fund investment, benefitted from its conservative approach to bond investing during the difficult market period. Besides strong stock index and bond funds, it has quality actively managed funds such as Primecap Core Fund (VPCCX) and Windsor Fund (VWNDX).

Here, ranked by Morningstar in order of their three-year performance, are the remaining major families:

American Century Investments, American Funds, JPMorgan, Hartford Mutual Funds, BlackRock, John Hancock, ING Retirement Funds, Invesco Aim, Franklin Templeton Investments, Fidelity Investments, Eaton Vance, Van Kampen, DWS Investments, Lord Abbett, GMO, OppenheimerFunds, Putnam, RiverSource, AllianceBernsein and Dodge & Cox.

Fund giant Fidelity's hiring of a raft of research analysts several years ago has yet to bear fruit, Morningstar found, for its stock funds have underperformed and manager departures have also hurt. Some of its best funds are Fidelity Low-Priced Stock Fund (FLPSX), Contrafund (FCNTX) and Dividend Growth Fund (FDGFX).

Equipped with fund family knowledge, investors must now look ahead. The categories hurt most in the downturn have actually enjoyed the biggest recent boosts, said Dolan, specifically high-yield bonds, emerging-market bonds and stocks, and technology stocks.

"It has been hard for mutual funds to escape what the market is doing on the upside or downside," said Charles Rotblut, senior market analyst for Zacks.com in Chicago, who especially likes the prospects of funds investing in technology. "Over the next six to 12 months, investors should look at what funds can benefit most from a true economic recovery, rather than what sectors are still down and look cheap."