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10 Biggest U.S. Stock Funds Trail Standard & Poor's 500

September 24, 1996|From Bloomberg Business News

None of the 10 biggest U.S. stock mutual funds is generating higher returns than the Standard & Poor's 500 index over the last three years.

The funds, ranging from the $53.2-billion Fidelity Magellan Fund to the $15.2-billion Vanguard Windsor Fund, have all recorded lower gains than the S&P 500's annual return of 17.1% since September 1993, according to a report by Lipper Analytical Services Inc.

That includes the $26-billion Vanguard Index Trust-500 Portfolio that was designed to mimic the benchmark S&P 500 index. The Vanguard index fund is up 16.95% a year over the last three years, trailing the S&P 500's gain by 15 basis points a year, Lipper Analytical reported.

Vanguard's index fund is the top performer of the nation's 10 biggest funds, but its returns lag the S&P 500 because of expenses deducted that go to Vanguard to manage the fund.

Overall, Lipper Analytical estimates that just 22% of the more than 1,135 actively managed stock funds sold in the U.S. recorded better returns than the S&P 500 Index over the last three years.

This year, only the Vanguard Windsor Fund is doing better than the S&P 500 index, according to Lipper Analytical. The fund is up 12.79%; the S&P 500 index is up 12.74%, as of Thursday.

The conventional wisdom is that the bigger a mutual fund gets, the harder it is for the fund to perform. That certainly is the case this year and has been for the last three years.

"There's no question the returns of bigger funds gravitate toward the mean," said Neil Bathon, president of Financial Research Corp. in Chicago.

When a fund gets to $10 billion or more in assets, it's more difficult for the manager to consistently beat the average because it takes large, concentrated bets in an industry or asset class to influence the fund's overall performance, Bathon said.

"If the manager makes a wrong bet, the fund is going to have some problems," Bathon said.

That's what happened to the Fidelity Magellan Fund this year, Bathon said.


The Big Ones

Annualized gains* of the 10 largest U.S. equity funds over the past three years relative to the S&P 500.

S&P 500 Index: 17.10%

Vanguard Index Trust-500 Portfolio: 16.95

Fidelity Gr. & Inc.: 16.43

Wash. Mut. Invs. 16.02

Fidelity Contrafund 15.35

20th Century Ultra Invs. 14.49

Inv. Co. of America 14.24

Vanguard/Windsor 14.08

Fidelity Magellan 12.60

Fidelity Puritan 11.1%

Income Fund of America 10.92


Source: Bloomberg Business News

* Annual increase as if it were consistent each of three years.

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