Actively Managed Mutual Fund Holders are Getting the Shaft

By on December 16, 2011

Ken Heebner - CGM Focus FundThe Street reports that, on average, actively managed large-cap funds are having an extremely poor year. According to Goldman Sachs, 72% of 261 large-cap core funds are underperforming their indices. Only 16% of large-cap growth funds are outperforming the index.

Some of the funds are run by famous and renowned investors who have posted stunningly dismal results year-to-date.

Bill Miller - Legg MasonBill Miller, famous for beating the S&P 500 a remarkable (but perhaps lucky) 15 years in a row, manages the Legg Mason Capital Management Opportunity Fund. This mid-cap value fund has dropped a mind-boggling 36% so far this year.

Ken Heebner, who was once leading the money-managing pack, has seen his CGM Focus Fund stumble to a loss of 28% this year.

The list of poor performers is long this year and includes more big funds:

The $5.5 billion Kaufmann Fund, which has been around a long time, is down 14% year-to-date.

The $7 billion important sounding Lord Abbett Affiliated Fund is down 9.8%. Like many of the underperformers, manager Dan Frascarelli made some poor bets on financial companies including Wells Fargo, JPMorgan Chase, and Goldman Sachs.

Surprisingly, the $8.5 billion Fidelity Dividend Growth is down over 10%. It’s surprising because the fund holds 536 different stocks. It takes some reverse skill to underperform the index to that degree when your portfolio is so diversified. If an investor had just purchased the Vanguard High Dividend Yield ETF (VYM) they would be up over 6%.

Even the supposedly brilliant investors at Goldman Sachs look like dunces with their Goldman Sachs Large Cap Value Fund sitting on a loss of 11.7%. They supposedly focus on investing in large-cap firms with healthy free cash flow, as well as strong and improving balance sheets. Whatever they’re doing it’s not working.

The Street article mentions a couple more names (Fairholme & Janus Overseas), but there are many more examples of actively managed funds failing investors.

Most of these funds charge fees that are 10 times more than an investor would pay to own a comparable index fund. Its not surprising then that $55 billion has left domestic large-cap core equity funds from the beginning of the year through Nov. 21, equal to 7.8% of their assets, according to S&P Capital IQ.

Investors are waking up to the fact that actively managed funds are taking their money and not delivering them to the promised land.

Source: The Street


  1. Barron Maestro

    December 16, 2011 at 6:33 am

    The Street also has an article devoted to funds that have had a good year:

    The challenge for investors is to pick these in advance.

  2. The Edge

    December 17, 2011 at 4:32 pm

    Bogle was right! These guys get lucky, gain a lot of attention, then get millions of suckers to invest in their portfolios.

    Then the hammer comes down.

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