Last year saw a number of notable investment trends, including a broad move away from actively managed mutual funds into cheaper, passively managed vehicles such as exchange-traded funds and index funds. Likewise, investors seemed to lose their taste for risk, moving money out of the stock market and stuffing it into bonds, or in many cases, checking and savings accounts. But retail investors aren't the only ones who have been affected by these developments.
Falling behind
American Funds and Janus, two of the biggest fund shops around, have also been feeling the heat as investors make changes to their portfolios. Both shops have struggled with underwhelming performance and asset loss in recent years as investors have fled active funds in general and stock-focused active funds more specifically.
According to data from Bloomberg, of Janus' 20 biggest stock-oriented funds, only four beat their benchmarks over the one-year period ending Jan. 24. Investors, with their typical short-term focus, have yanked assets from their Janus funds, contributing to a 46% decline in fourth-quarter profits for the firm.
Likewise, American Funds has also suffered at the hands of disillusioned investors. The shop saw outflows of $81 billion last year, including $33 billion in outflows from one fund alone -- the flagship American Funds Growth Fund of America (AGTHX). All told, American Funds has seen its asset base dip by about 15% since the end of 2007. While it still boasts some of the biggest mutual funds around, middling performance and investor flight from active management have taken its toll on the company.
But while investors are right to feel disappointed with the performance at many funds in the Janus or American Funds lineup, think twice before ditching your funds. There are some funds that may deserve to get the heave-ho, but there are also a few that I think investors should hold on to. Here are two great funds from these firms that fall into the latter camp:
Finding middle ground
While there are a handful of Janus funds that investors might want to consider for their portfolios, some of the best options are quietly hidden away from the main Janus brand. Janus is the majority owner of Perkins Investment Management, a Chicago-based value manager that runs six mutual funds of its own. One of my favorites here is Perkins Mid Cap Value (JMCVX). The management duo in charge looks for financially healthy companies that are temporarily undervalued for some reason. The team has recently been adding to their financial holdings, spurred by the belief that many midsize firms are beginning to look well capitalized. In particular, managers Thomas Perkins and Jeffrey Kautz see Ameriprise Financial
There is a strong focus on quality here, which means that the fund tends to shine most brightly in challenging market environments. For example, the fund only lost 27.3% in 2008, more than 11 percentage points better than the benchmark Russell Mid Cap Value Index. Of course, that also means that it won't reach for the stars in more speculative markets, but long-term results have been first-rate. Over the past decade, the fund has landed ahead of 82% of all mid-cap value funds with an 8.2% annualized return. Perkins Mid Cap Value is closed to direct retail investors, but if you can buy the fund through a retirement platform or other financial intermediary, I'd recommend doing so.
A promising up-and-comer
While flagship funds like Growth Fund of America tend to get the lion's share of assets and attention over at American Funds, there is one other relative newcomer to the lineup that I think investors should consider. American Funds International Growth and Income (IGAAX) was born back in late 2008, a rare new offering for the shop. The fund, run by a team of portfolio managers like all American Funds, looks for well-established overseas companies that pay attractive dividends. Royal Dutch Shell
The fund can invest in both developed and emerging countries, although its focus on firmly established names means that developed nations get the most play. At last glance, roughly 90% of assets were allocated to developed markets.
Although the fund has only been around for a little more than three years, performance in that time has been promising. In the past three-year period, International Growth & Income has posted an annualized 15% gain, landing it just outside the top third of all foreign large-cap blend funds. With record-low bond yields and mediocre stock returns at their backs, investors have been desperately seeking greater yields from around the globe. A fund like this can be a potent weapon for investors who want some income with their capital appreciation.
In the end, when evaluating your mutual funds, remember to look at the long-term picture and not to overreact to short-term events or underperformance. Despite investor willingness to abandon active management, there are some solid, market-beating active funds out there -- you've just got to have the discipline to stay with them over time.
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