Janus and Hartford Mutual Funds brought their average investors the best return on their money over the past three years, says a new Morningstar fund analysis.
The analysis compares the returns of the 20 largest fund families by looking at the three-year percentile performance rank for their domestic stock funds, and then dollar-weights those percentile ranks based on where their asset base stood three years ago.
Morningstar felt that using asset bases from three years ago would produce results less skewed by appreciation and fund flows. Dollar-weighting usually produces average return rates that are lower than time-weighted ones. Morningstar says the dollar-weighting system gives a clearer picture of how the average investor fared, given that investors trade actively and vary their exposure, rather than staying in a fund for the duration.
The Morningstar analysis is designed to even out the effects of large numbers of investors jumping into, or out of, a fund and shows how the fund did for the average investor during that time. The results reflect the skill level of the fund managers, says Russel Kinnel, Morningstar director of mutual fund research.
Given this weighting system, Janus and Hartford Mutual Funds led the list, ranking near the top 20 percentile in performance. Coincidentally, both also improved about the same amount from the rankings achieved for the three-year period covering 2001 through 2004. Both moved up in performance by about 13 percentile points.
Davis Funds (ranked approximately in the top 26th percentile) and American Funds (ranked approximately in the top 33rd percentile) came in next. American Century Investments (64th percentile), John Hancock (74th percentile) and Putnam (80th percentile) were the bottom three.
The rankings can be misleading, Kinnel acknowledges. The popular Dodge & Cox fund family was in the top 1 percentile three years ago, but dropped to the 35th percentile at the end of 2007. That drop was the steepest among the 20 funds, but Dodge & Cox still ranked sixth overall. "Nobody stays at 1 percentile very long," Kinnel says.
Click on the results at http://news.morningstar.com/articlenet/article.aspx?id=226159.