Sometimes everything you know is wrong.
Everyone knows that small funds, being more nimble and able to stake out smaller positions are more adroit at exploiting market opportunities.
Everyone knows that with size, lumbering funds are pitiful giants who must take weeks or even months to unwind their huge positions.
The big funds are derided as asset gatherers, rather than asset managers.
And the list just goes on and on.
American Funds: Growth Fund of America
The gargantuan American Funds Growth Fund of America (AGTHX) weighs in at a sumo sized $190 BILLION in Assets, making it the big kahuna of all funds by far.
Yet their year-to-date return through the end of May is a respectable minus 0.24%. Respectable compared to the S&P 500, which clocks in at a sickly -4.6% for the same period. On a relative basis, that is solid out-performance.
Looking back, their annualized compounded return is 11.9% for the trailing three year period, and 13.09 for the trailing five year period. All well in excess of the S&P 500 for similar periods, and for other large cap growth funds.
They do this with a team approach, utilizing eleven portfolio managers, and charge a modest 0.62% expense ratio. My only complaint is the front end load, which is 5.75% before breakpoints for larger orders.
I run across this fund all the time in client 401k accounts, and use it as the tent-pole core position when allocating the portfolio holdings.
I’m simply amazed it has done as well as it has, flying in the face of conventional wisdom.
Pimco: Total Return Bond Fund
It’s twin on the fixed income side would be Pimco’s Total Return Intermediate-Term Bond Fund (PTTRX), weighing in at $128 Billion.
This makes it the largest of the bond funds by a wide margin.
Managed by the legendary Bill Gross, its year to date return through May 31 is 2.81%, and its respective three and five year trailing returns are 5.43% and 4.87%, all well in front of its bogey, the LB Aggregate Bond Index.
Again, its no coincidence that its expense ratio of 0.43% is lower than that of most of its peers.
Morningstar was so impressed, they named Gross the 2007 Fixed Income Fund Manager of the year and gave it its most highly rated five star ranking.
To appreciate the performance of these two megafunds, simply go to page 4 of the money and investing section of the Wall Street Journal, where the largest stock and bond fund returns are tracked, immediately below the broad market and commodity indexes.
These funds are far in front of the pack. Nice. Remember, only the lead dog ever gets a change of scenery.
As you work through your limited menu 401k choices, here are two core positions you should feel comfortable with.
They’ve earned their pole positions.