Corporate culture isn’t commonly mentioned when it comes to being a driver of fund performance, but it could easily be the greatest determinant of what drives any fund’s most valuable asset: its investment talent.
Many large companies give lip service to the oft-repeated slogan: “Our people are our most important asset.” But anyone who has worked in corporate American knows that is frequently not the case. Increased mobility, forced layoffs, job instability, downsizing, outsourcing, discontinuing or curtailing benefits, and treating employees as expenses have all become more commonplace in the workplace.
When this happens in the money management industry, it eventually works its way into employee morale, which ultimately affects fund performance. But the industry’s largest fund families have established systems and corporate cultures which continue to produce above-average performance, despite the large size of these corporations.
Here is a list of the top-three performing funds for 2010 from the nation’s largest fund families: Fidelity, Vanguard and American Funds.
Fidelity
Fidelity Growth Company Fund (FDGRX)
YTD return: 21.14%
Expense ratio: 0.93%
Manager: Steven Wymer, since January 1997
Top holdings: Apple (Nasdaq:AAPL), Salesforce.com (NYSE:CRM), Google (NASDAQ:GOOG), Exxon Mobil (NYSE:XOM), Red Hat (NYSE:RHT)
U.S. large-cap growth may be one of the industry’s most heavily-covered sectors, but the $35 billion FDGRX fund has proven that above-average stock selection pays off. Its diversified portfolio (303 individual holdings) gives it the breadth, while its top 10 holdings, which comprise 24% of the portfolio, can make stock selection pay off. For the last quarter, the fund had its biggest exposures in information technology (41%) and health care (17%). This is a finely tuned machine, so a few solid selections can make all the difference to overall performance. For the year, its largest gainer was Salesforce.com, which generated a 263% gain.
Fidelity Blue Chip Growth (FBGRX)
YTD Return: 19.42%
Expense ratio: 0.94%
Manager: Sonu Kalra, since July 2009
Top holdings: Apple, Google, Amazon (NASDAQ:AMZN), Qualcomm (NASDAQ:QCOM), Exxon Mobil, Hewlett-Packard (NYSE:HPQ), Target (NYSE:TGT).
As the stock market recovered and the dollar declined in 2010, it lifted the fortunes of many large-cap growth stocks, which derive significant sales from overseas. That was one factor which contributed to the $13 billion FBGRX’s strong return over the Russell 1000. Its top 10 holdings comprised 27% of the 261 stocks in the portfolio. The fund is comprised of 91% U.S. multinationals and 9% international companies, with small percentages in India (3%) and Germany (1%). For the year, the fund slightly increased its exposure in information technology (to 37%), but remained constant in its exposures to consumer discretionary (16%) and industrials (12%). Its largest gamble for the year was its very profitable gain in Las Vegas Sands (NYSE:LVS).
Calamos Growth (CVGRX)
YTD Return: 19.97%
Expense ratio: 1.33%
Managers: John Calamos Sr., Nick Calamos, John Calamos Jr.
Top holdings: Google, Apple, Amazon, Priceline.com (NASDAQ:PCLN), Baidu (NASDAQ:BIDU), ABB (NYSE:ABB), Cisco (NASDAQ:CSCO)
This $8.3 billion fund plods through a well-covered market sector, looking at securities of companies with market capitalizations in excess of $25 billion. Its mid-sized market capitalization holdings have a market capitalization from $1 billion up to $25 billion. This mandate includes many opportunities, but the fund’s solid stock selection made it a category leader. At year-end, the fund was concentrated in the hardware, consumer services and industrial metals sectors, which comprised 54% of the portfolio. For the first half of the year, the fund benefitted from exposure to health care and information technology. For the year, the fund focused on quality issues and reduced exposure to cyclicals (energy and industrials), while increasing its exposure to consumer discretionary. Its biggest contributor to performance in 2010 was F5 Networks (NASDAQ:FFIV), which gained 160%.
Vanguard
Vanguard Precious Metals and Mining (VGPMX)
YTD return: 36.83%
Expense ratio: 0.27%
Manager: M&G Investment Management, London, (since 1984)
Top holdings: Newmont Mining (NYSE:NEM), Centerra Gold (NYSE:CG), Hochschild Mining (NYSE:HOC), Iluka Resources (NYSE:ILU), Lonmin PLC, Semafo.
This is a focused (only 49 holdings) global precious metals and mining fund, with its largest exposures in Canadian, Australian and U.K.-based operations. Its top 10 holdings comprise about 50% of the total fund, so it has to watch its holdings carefully. Good stock selection was propelled by the sector’s dramatic year-long price appreciation, which provided significant momentum.
Vanguard Small Cap Growth (VISGX)
YTD return: 31.59%
Expense ratio: 0.28%
Manager: Vanguard Quantitative Equity Group
Top holdings: Riverbed Tech (NASDAQ:RVBD), Informatica (NASDAQ:INFA), Micros Systems (NASDAQ:MCRS), United Therapeutics (NASDAQ:UTHR), Gardner Denver (NYSE:GDI), Signet Jewelers (NYSE:SIG).
This is a large diversified fund with 1,016 stocks in the portfolio, yet it has a focused sector approach. Information technology, industrials, and consumer discretionary accounted for 64% of the portfolio. The fund follows a growth-style index of small-sized companies, which contributes to its volatility, but that paid off this year. Certainly, its low expense ratio contributed to performance.
Vanguard Mid-Cap Growth (VMGIX)
YTD return: 29.51%
Expense ratio: 0.30%
Manager: Vanguard Quantitative Equity Group
Top holdings: Cameron International (NYSE:CAM), Host Hotels & Resorts (NYSE:HST), Starwood (NYSE:HOT), Altera (NASDAQ:ALTR), F5 Networks, SanDisk (NASDAQ:SNDK)
As the index fund leader, this Vanguard fund offers exposure to 248 mid-cap U.S. growth-oriented companies, combined with an exceptionally low expense ratio. The fund closely tracks the MSCI Mid-Cap Growth Index, so as the recovery continues, it will lift all components in the index.
American Funds
Smallcap World Fund (SMCWX)
YTD return: 24.56%
Expense ratio: 1.13%
Managers: Gordon Crawford, Mark Denning
Top Holdings: ENN Energy, Kingboard Chemical, Container Corp. of India, AAC Acoustic Techn, Pacific Rubiales Energy.
Globalization has put many smallcaps on steroids, and SMCWX has the whole world to choose from. The fund’s managers define small capitalization as companies with market capitalizations of less than $3.5 billion. As evidenced by its top holdings, the fund invests about half of its assets outside the U.S., but the managers have altered that emphasis with U.S. stocks as conditions have warranted over the years. Diversification is also stressed: The fund holds about 500 stocks in many sectors, and it’s more exposed to weightings in emerging markets compared to other world-stock funds, according to Morningstar.
New World Fund (NEWFX)
YTD return: 16.87%
Expense ratio: 1.17%
Managers: David Barclay, Mark Denning, Carl Kawaja
Top holdings: American Movil (NYSE:AMX), Nestle, Turkcell (NYSE:TKC), OJSC Pharmstandard, and Anheuser-Busch InBev (PINK:AHBIF).
To escape the 2010 U.S. recession, investors benefitted by going overseas. That’s where the diversified $18.1 billion NEWFX invested in equities, with smaller exposures to government and corporate bonds and cash. Over 50% of the fund’s stock weighting is invested in the emerging economies, and its good stock selection helped it beat the MSCI Emerging Markets Index by about 1% (as of the end of the third quarter.)
American High Income Trust (AHITX)
YTD Return: 14.67%
Expense ratio: 0.68%
Managers: David Barclay, David Daigle
Top sector weightings: U.S. corporate (78%), foreign corporate (15%), mortgage CMO (1%)
This fund is a beneficiary of its own diversification. Its top five holdings represent only 5.34% of the portfolio, with overweight exposure in asset-backed securities and foreign bonds, primarily lower-rated, higher yielding bonds. At least 65% of the portfolio will be invested in high-yield, lower rated bonds (Ba or BB or below) at the time of purchase. Up to 25% of assets may be invested in securities of issuers outside the U.S., which is overweight relative to the category. As an added kicker, the bonds may be denominated in non-U.S. currencies. During the year, the fund benefitted from the wave of refinancing that helped many companies reduce their leverage, lower debt burdens and extend maturities. The fund benefitted from being well-positioned to benefit from this trend, which resulted in declining default rates and credit upgrades throughout the sector.
