Vanguard Windsor and Fidelity Growth Company Fund rank worst in net new business among the active equity stock mutual funds most used by defined contribution plans.
By contrast, big winners are Windsor's sister fund, Vanguard Windsor II, whose year-to-date net sales as of Sept. 30 were 11.3% of total assets, and Washington Mutual Investors Fund, with net sales of 10.9% of total assets, according to data from Financial Research Corp., Boston.
Among the losers, total assets in Vanguard Windsor dropped 21.8% to $17.1 billion as of Sept. 30 from $21.9 billion a year earlier. Net sales (new sales less redemptions) were -$1.7 billion of total assets year-to-date Sept. 30.
Total assets in the Fidelity Growth Company Fund dropped 13.9% to $9.6 billion as of Sept. 30, from $11.1 billion a year earlier. Net sales year-to-date Sept. 30 were -$1.5 billion of total assets.
As of Dec. 31, the latest data available, Vanguard Windsor had the sixth-largest amount of defined contribution plan assets among all active equity mutual funds, according to Pensions & Investments' rankings; Fidelity Growth was eighth; Washington Mutual, ninth; and Vanguard Windsor II, 10th.
Investors' impatience with poor performance, especially from out-of-favor asset classes, seems to be the driver behind most of the big asset swings in these funds.
Vanguard Windsor returned
-14.2% for the year ended Sept. 30, ranking it in the 95th total-return percentile among peer funds, according to Morningstar Inc., Chicago.
Fidelity Growth Company had a 1.3% return for the year ended Sept. 30, placing it in the 77th percentile of Morningstar's category ranking.
By contrast, Washington Mutual, a large-capitalization value fund, returned 9.9% for the year ended Sept. 30, putting it in Morningstar's third percentile among peer funds.
Vanguard Windsor II returned 5.45% for the period, placing it in the 12th percentile.
The $17.1 billion Vanguard/ Windsor fund, a large-cap value fund, has been closed to new investors, except those from existing 401(k) plan clients, since 1989, so Vanguard can't count on making up the loss with any new clients.
The fund is offered by Vanguard Group of Investment Cos., Malvern, Pa.; it is subadvised by Charles T. Freeman of Wellington Management Co., Boston.
Vanguard principal Jeff Molitor, director of portfolio review, would not discuss flows into or out of Vanguard Windsor.
Mr. Molitor did say: "The fact that this one is closed distorts the picture."
The fund's investment strategy has kept it a victim of market cycles, he said.
Mr. Freeman, he said, makes a small number of large bets, and hasn't changed his style during the volatile market. So, said Mr. Molitor, "the results of bottom-up stock picking" are market underperformance.
According to Mr. Molitor, half of Vanguard Windsor's shortfall vs. the Standard & Poor's 500 stock index was due to its value orientation; the other half, its bias toward midcap stocks and those at the lower end of the large-cap spectrum.
"Windsor I and II are very different portfolios," he said. Windsor II is "broadly diversified, with a large number of small bets. Windsor I is much more concentrated in its top 10 stocks . . ."
Vanguard Windsor II, with $27.6 billion in assets, is managed by multiple managers. James P. Barrow at Barrow, Hanley, Mewhinney & Strauss Inc., Dallas, manages about 70% of fund assets. Other managers include Ronald J. Ulrich at Equinox Capital Management Inc., New York; Melvin T. Tukman, Tukman Capital Management Inc., San Francisco; and George U. Sauter, a managing director at Vanguard.
"The multiple manager structure leads to a diversity of thought and ideas," said Mr. Molitor.
In addition, a strong exposure to utility stocks gave the Vanguard Windsor II fund a "big boost" in the third quarter, he said.
ROUGH START
The $9.6 billion Fidelity Growth Company Fund's new portfolio manager, Steve Wymar, had a rough start to the year, said his boss, Robert C. Pozen, president and chief executive officer of Fidelity Management & Research Co., Boston.
"Steve struggled in the beginning of the year. . . . While his early numbers were not that strong, his three- and six-month numbers are much better," Mr. Pozen said.
(According to Morningstar, the Fidelity Growth Company Fund had a return of -8.3% for the three months and 10.2% for the month ended Sept. 30.)
Other long-tenured managers at Fidelity have a "tremendous loyal following," Mr. Pozen said, meaning investors will endure a period of underperformance because of their confidence in the manager. But in Mr. Wymar's case, he said, "I think people were not willing to wait and see because Steve is new on the fund."
BLUE-CHIP INVESTMENTS
Chuck Freadhoff, spokesman for Capital Research & Management Co., Los Angeles, which manages the $44.8 billion Washington Mutual fund, attributed its success to its investing in blue-chip stocks traded on the New York Stock Exchange and staying fully invested.
"When the market has done well, so have these stocks. When you're fully invested in a market that's rising and you're invested in large companies, you'll do well,' Mr. Freadhoff said.
Meanwhile, the $40.3 billion Fidelity Growth & Income Fund also had a banner year, with net sales of 3.5% of total assets through Sept. 30. The fund has been open only to defined contribution plans since April.
The fund, under portfolio manager Steven Kaye, returned 10.3% for the year ended Sept. 30, placing it in the eighth percentile by Morningstar. The Growth & Income Fund is the second largest in P&I's annual mutual fund survey of assets under management for defined contribution plans.
MAGELLAN 'IMPROVING'
And Robert Stansky, manager of the gigantic $65.9 billion Fidelity Magellan Fund, has been steadily improving performance - 4.6% for the year ended Sept. 30, putting it in the 46th percentile in Morningstar's category ranking. His boss, Mr. Pozen, said Mr. Stansky's performance has been "excellent, beating its peers." Still Magellan lost about 1.2% of its assets year-to-date Sept. 30. Since September 1997, the fund has been closed to all but defined contribution plan investors.
Mr. Pozen said that Mr. Stansky continues to reduce the number of holdings in Magellan to 380 from 460 when he took over; he also views the market volatility as a buying opportunity.
As of Dec. 31, Magellan had the most DC plan assets of any active equity mutual fund.
MARKET BIAS HELPS
Meanwhile, the $27.6 billion Putnam Voyager/A Fund has benefited strongly from the market's growth stock bias, said co-manager Charles H. Swanberg, a senior portfolio manager at Putnam Investments, Boston.
Voyager A had net sales year-to-date Sept. 30 of $736 million, 6% of total assets. It returned -1% for the year ended Sept. 30, the 18th percentile in Morningstar's category ranking of peer funds.
Mr. Swanberg said his fund has had great success in the past year because of a moderate overweighting in the consumer sector, especially in retail stocks such as Costco Cos. Inc., Kohl's Corp., RiteAid Corp. and Starbucks Corp.
Voyager has a heavy overweighting in media stocks vs. its benchmark, the Russell Mid-Cap index.
Short term, Mr. Swanberg - and colleagues Robert R. Beck, Roland W. Gillis and Michael P. Stack - have been underweighted in technology, primarily because they feel the stocks are overrated.
