3
Morningstar FundInvestor
September
2013
much, and that’s also helped investor returns. Funds
that close tend to have strong investor returns as they
often close near their peak.
The Worst Investor Returns
Warning, this article is about to get depressing. I will
look at the funds with the worst
15
-year investor
returns, and it isn’t pretty. It’s a lesson about hopping
onto a fund after a great run. In this case it’s mainly
about growth funds that were brilliant in the late
1990
s and suffered a brutal bear market. Even after
the bear market, growth lagged for quite a number of
years. However, the main point is don’t jump on
funds with huge three-year returns as they are likely
to see a big downdraft.
Five funds in the Morningstar
500
actually produced
negative investor returns over the past
15
years.
Had you simply bought
Vanguard Total Stock
Market Index
VTSAX
or
Vanguard Total Bond
Market Index
VBTLX
and held it over that time,
you’d have earned a little more than
5%
annualized.
Some of the funds with negative investor returns
actually beat those figures with their total returns,
but investors made a mess of it by buying at the
top and giving up near the bottom.
Janus Research
JAMRX
(née Janus Mercury) had
a decent
5
.
8%
annualized
15
-year return turned into a
dismal
2
.
5%
investor-returns loss. Like the rest of
Janus, it rode a wave of tech-stock popularity to great
returns right up until the bear market hit in March
2000
. Nearly all of the fund’s assets came through the
door in
1999
and
2000
when it hauled in $
5
.
4
billion
and $
4
.
1
billion. So, most of its investors came in right
near the top. The flows reversed course in
2001
with $
944
million going out the door in
2001
and $
1
.
2
billion in
2002
. This was followed by $
955
million
in
2003
. Thus, a huge sum went out right near the bot-
tom in late
2002
. The fund has been in steady out-
flows since then, though it had a trickle of inflows
in
2007
.
The fund’s performance has actually been respectable
albeit volatile. It generally beat its peers in good
years and got thumped in bad ones. For instance, it
lost
44%
in
2008
then gained
43%
in
2009
. But it
isn’t just the case of a volatile fund that was too hot
to handle. The market-timing scandal hit Janus in
2003
, and that undermined investor confidence just
as the fund was rebounding. In addition, manager
Warren Lammert left in
2003
, then David Corkins left
in
2006
. When Corkins left, the fund switched to an
analyst-run format. That tumult has also made it hard
for investors to stick around.
Janus Fund
JANSX
also has a dismal
0
.
95%
in-
vestor-return loss, and it, too, suffered from volatility
and manager changes. Only it also produced poor
total returns, so it would have been awfully tough for
investors to squeeze a good return out of that.
Janus Twenty
JAVLX
is also on the
10
worst list,
though, like Research, it produced pretty good
15
-year total returns.
The second-worst fund on the list comes from Van-
guard. That’s right. In one of the darker chapters
at the firm, Vanguard took over a momentum fund at
the exact market top. Turner Growth Equity became
Vanguard Growth Equity
VGEQX
in March
2000
.
That brought with it $
1
billion in inflows in
2000
. As
it turned out, that was the only year in the fund’s exis-
tence that it received significant inflows. There
wasn’t the drama we saw in the Janus example, but
there was a similar result from an influx at the top.
However, momentum went into a long funk, and the
fund has endured mediocre results since then. Van-
guard wasn’t happy with Turner’s results. It added a
second subadvisor, Baillie Gifford, in
2008
and fired
Turner in
2009
, replacing the firm with managers from
Jennison.The fund’s
10
- and
15
-year total returns are
below average, and it’s clear why its
15
-year investor
return is negative
2
.
2%
.
Turner Midcap Growth
TMGFX
is also on the bot-
tom
10
list despite a strong
7%
annualized return.
That
7
.
1%
total return became a tiny
0
.
1%
investor
return as momentum’s ups and downs proved too
much for many investors. Volatility and extended
periods of being out of favor are a recipe for poor
investor returns.
