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In the mutual fund arena, it's hard to claim that bigger is better. Too many funds lose a bit of flexibility and agility as they put on weight. Yet tens of millions of Americans have part of their wealth tied up in these heavyweights, and money continues to pour into them.
So we thought it was time to take a hard look at the 20 biggest no-load stock funds to separate the true champs from the tired also-rans. We include balanced funds, index funds and funds that have closed their doors to new investors, because even shuttered funds are open to existing customers (but we excluded one index fund that required a $100,000 initial investment).
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As you'll see, some of the behemoths have managed their weight gain gracefully. Others have simply become bloated and seemingly lost their way. But there are no truly awful funds among the 20 biggest; we suggest selling only one of them. We divide the funds into four groups and list them, within each category, by size.
Domestic funds
Weighing in at a hefty $69 billion, Fidelity Contrafund is the biggest actively managed no-load fund. In charge is Will Danoff, a feisty, opinionated manager who invests wherever he sees fit. Since he took over in 1990, Contra has gained 16% annualized, beating Standard & Poor's 500-stock index by an average of four percentage points per year.
Despite its name, Contra, which is closed to new clients, does not focus on out-of-favor stocks. Rather, Danoff buys growth stocks that he thinks others are underestimating. Recently, his biggest positions included Apple Computer and Google -- hardly laggards. The fund had 24% of its assets in foreign stocks. Danoff has a great record, but given his fund's immensity, we advise investors to HOLD their positions but not add to them.
If you already have a position in Dodge & Cox Stock, consider yourself lucky. The fund, which is closed to new investors, is a marvel of consistency. Over the past 20 years, it has ranked among the top 50% of large-company value funds 17 times. Its 15% annualized return tops the category average by four percentage points a year. Yearly fees, at 0.52%, are exceedingly low for an actively managed fund.
D&C Stock is a triumph of discipline and process -- and of management by committee (see "The Dodge & Cox Mystique," Nov.). In-house security analysts generate stock ideas after studying company candidates for months. They write detailed reports and make oral presentations that are reviewed by an investment-policy committee of nine. Once the fund buys, it sticks with its holdings for an average of seven years. Assets, now topping $61 billion, bear watching, but Dodge & Cox's low-turnover style mitigates some of the problems of size. If you're already a shareholder, BUY more.
It's not hard to see why Vanguard Windsor II is Vanguard's largest actively managed fund. James Barrow, a crusty Texan from Barrow, Hanley, Mewhinney & Strauss, in Dallas, has been at the helm of this large-company value fund since its launch in 1985. "I've run it the same way for 20 years," says Barrow, who manages about 60% of the fund's assets (five other advisers run the rest). During that span, Windsor II returned 12% annualized, placing it in the top 20% of its category. The fund's annual expenses, at 0.35%, don't get much lower.
Barrow looks for stocks that sell at cheaper prices than the market on various measures and that offer a higher yield. Once he adds a stock, he tends to hold for four to five years, on average. He's kept Altria, the former Philip Morris, for 20 years. "If you have a value manager with 100% turnover, he's a trader, not a value manager," says Barrow. Windsor II remains a BUY.
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