Behind Fund-House Mirrors
After a quarter of record highs for stocks, here are rankings and profiles of how the largest fund families are faring
NEW YORK — Crave excitement? Seek drama? Envision glittering prizes to win or gold to gain?
Welcome to the carnival-like world of mutual funds, where grand promises are made, high-tech wizards of finance become portfolio-manager superstars, and small investors can dream of wealth.
And like a sprawling fairground, it's often disorienting. Sales pitches and publicity can make it hard to narrow the field from the thousands of funds available to the few you need.
Financial advisers generally don't recommend solving the problem by sticking to only one fund family.
"No one family ... has the best [funds] in all categories," says Kirk Kazanjian, president of Wall Street Advisors in Tulare, Calif.
But many investors like the feeling of a "home base," a main group where they feel comfortable with both investing style and performance record.
With that in mind, the Monitor asked Morningstar, the Chicago fund-tracking service, to crunch some overall performance numbers on the 20 biggest fund families. That, combined with the family profiles in this article, may help you navigate around the mutual fund state fair.
This is a world where big is not necessarily bad and where giant companies dominate the investment landscape.
Consider: For the past five years, Fidelity Investments, the world's largest mutual fund family, was also the top performer of the 20 biggest fund houses.
But, as if to remind investors that the less-known and smaller fund families can post impressive returns, Massachusetts Financial Services (MFS) tied Fidelity for first place, with five-year returns averaging 19.64 percent for US stock funds.
The two Boston rivals are a study in contrasts: Fidelity, the big-name group with slick TV marketing and a reputation for grooming star managers, and MFS, with a less-than-catchy name and a consensus-oriented style. MFS ads remind TV viewers that it started the nation's first mutual fund in 1924.
In third place, and also just shy of matching the Standard & Poor's 500 stock index, was T. Rowe Price of Baltimore, which Fidelity and MFS beat by only a nose.
For the first half of 1997, the hottest family is another Boston-based fund group, Scudder, with domestic equity funds up a little over 15 percent.
The competition among fund families is leading to consolidation.
Scudder is being bought by the Zurich Group of Switzerland, which will merge it with another big fund group it owns - Kemper of Chicago.
So you really can't know the players without a scorecard.
It's probably wise, in fact, to use several scorecards. The rankings used in this article are just one way to assess performance.
Franklin Templeton, for example, won top honors in a Feb. 3 ranking by U.S. News & World Report, while faring the lower half of the Monitor's rankings.
Franklin Templeton is known mostly for fixed-income and foreign-stock funds, both of which were excluded from the Monitor survey. U.S. News included these categories and factored in risk and fees as well as returns.
Another ranking, in the June issue of Mutual Funds magazine, lists fund groups according to how their offerings compared with funds having similar objectives. T. Rowe Price and MFS led the way among big-20 firms in that survey, followed by Fidelity, American, Vanguard, and Putnam.
Often, the largest companies in terms of assets (money invested) are also the best performers. They got big precisely because they did an outstanding job in meeting investor needs.
But if you focus only on the biggest families, you'll miss out on successful fund houses such as Neuberger & Berman, Strong, and Muhlenkamp.
With that caveat, here are short profiles of the largest mutual fund families, based on information from funds and analysts.
The big brokerage houses - Merrill Lynch, Dean Witter, Smith Barney, Prudential, and Van Kampen American Capital (a unit of Morgan Stanley) - are discussed in a separate story.
Assets: $439 billion
Call it mighty Fidelity, the powerhouse of the mutual fund industry. Fidelity's Magellan Fund is the world's largest fund, at $59 billion, but in the past few years its size has made it sluggish, critics say.
Many of the Boston group's funds have billions of dollars in assets, but talented managers, backed by a large research staff, often find ways to beat their peers.
Often considered secretive, Fidelity has seen several managers leave in the past year. Watching money flow into Vanguard's index offerings, the group is also adding more funds that track stock indexes.
Assets: $268 billion
Vanguard, say insiders, is a Spartan company determined to be user-friendly and keep management fees down. Its Index 500 fund is the world's best-known and biggest index fund, and it also draws in money with other index funds that track small-company and foreign stocks.
But many companies, from Fidelity and Merrill Lynch to Insurance giant USAA, are moving in on Vanguard's turf.
The company is based in a rural setting outside Philadelphia.
Assets: $185 billion
American, owned by Capital Research & Management in Los Angeles, may be one of the best kept "secrets" in the industry. Some investors may not even realize their funds are American funds. They include such diverse entities as Investment Company of America ($35 billion), Washington Mutual, American Mutual, and Income Fund of America. Its 28 funds are often divided into sections, each with its own manager - a strategy that can help the funds adapt to market shifts.
Assets: $144 billion
This San Mateo, Calif., family resulted from a 1992 merger. While best known for Templeton's global funds, the Franklin bond funds impress some analysts. Franklin Templeton is the only remaining major fund family with very low entry fees (a $100 minimum). It also owns Mutual Beacon and Mutual Qualified, funds run by noted value investor Michael Price.
Assets: $121 billion
Putnam, another Boston landmark, is owned by insurance giant Marsh & McClennan. It keeps a very low profile next to Fidelity, but investors have noticed its strong record. Last year its assets grew 42 percent as new money flooded in. Its diversified equity offerings are consistently successful. Fund managers are watched by sharp-eyed overseers.
Assets: $78 billion
Known for the lion roaming around its ads, New York-based Dreyfus is a subsidiary of Mellon Bank. It is expanding its fund offerings and promoting Lion Accounts, which include free financial advice and access to the funds of other families.
T. Rowe Price
Assets $72 billion
Team management does the trick for this old-line Baltimore firm. Many of its US and foreign equity funds have been steady winners. The company seeks young investors, in part by holding down entry fees if you commit to monthly installments.
Assets: $63 billion
One of the few large groups based in the South (Houston), AIM follows a "momentum" style - seeking companies with accelerating earnings. Well-known funds include Constellation and Weingarten. The group is being acquired by the British investment giant Invesco. The latter has a broad Denver-based fund family, including successful sector funds.
Assets: $60 billion
American Express Financial Advisors, whose IDS brand of funds hails from Minneapolis, take the conservative approach that you might expect from a Midwestern home and a famous parent, analysts say. American Express ad dollars give the group tremendous marketing clout.
Assets: $57 billion
Insurance company Massachusetts Mutual owns 40 percent of Oppenheimer. The New York group takes a generally conservative tack. Its Main Street Income & Growth Fund has won fans over the years.
American Century Group
Assets: $51 billion
The Kansas City, Mo., group offers a wide variety of funds and has sought to attract young investors through monthly installment plans. It is the result of a merger in January of Twentieth Century Funds and the Benham Group. Within the family are three style brands: Benham, the most conservative, following its bond roots; American Century, moderate; and Twentieth Century, aggressive, momentum-driven.
Assets: $41 billion
The Denver-based group has dared - often successfully - to be different. Some funds concentrate heavily in a few companies. Newer foreign offerings have won praise, and big inflows from investors.
Assets: $38 billion
This Chicago group, a pioneer in bond funds, expanded its equity offerings by acquiring the well-regarded Dreman Value funds two years ago.
Assets: $37 billion
An old New York investment firm that runs its funds out of Boston, Scudder aims to become a better marketer to the masses. Its 37 stock and bond funds include 11 that focus overseas.
Assets: $35 billion
Massachusetts Financial Services, owned by Canada's Sun Life Assurance, is known primarily for fixed-income funds. But its flagship large-company stock fund, Massachusetts Investors Trust, has been a winner. Some funds are team-managed.
* Staff writer Mark Trumbull contributed to this story from Boston.