(Dow Jones) To learn that your mutual-fund firm's lineup posted negative returns over a decade is one thing; to realize that almost $60 billion of investors' wealth was wiped out is another matter entirely.
That's what happened at Janus Capital Group Inc. from 2000 through 2009. The fund giant's offerings collectively saw 10-year asset weighted total return of minus 1% a year, which translates into $58.4 billion of investment losses.
Janus was the worst "wealth destroyer" in a study released this week from investment researcher Morningstar Inc. Results were not much better at Putnam Investments, which shredded $46.4 billion of shareholder wealth in the period, while mutual funds at AllianceBernstein Holdings and Invesco Aim, a unit of Invesco Ltd., lost shareholders $11.4 billion and $10.1 billion, respectively.
The figures show that fund investors risk not only picking the wrong type of investment, but also choosing the wrong firm for the job. All five of these fund families were heavily invested in technology and growth stocks-the decade's biggest wealth-destroying fund categories. Large-cap growth funds lost $107.6 billion for investors, while tech funds erased $62.8 billion of their money in the period.
"Results were really influenced by what happened at the start of the decade, when investors rushed to tech and growth and then they crashed," said Sonya Morris, editorial director at Morningstar.
Because the study looked at dollar amounts, it skewed toward the largest firms. Morris calculated investment losses by looking at assets under management at the start and end of the period and subtracting flows during the 10 years.
"We're not pleased with Janus' performance in 2000 and 2001, but we've made lots of investments in our analysts, and added risk management, in the last eight years," said Jonathan Coleman, co-chief investment officer at Janus. "We have been delivering consistent performance and will do so going forward, though there were times in the past when we didn't deliver that."
In a September 2009 report, Russel Kinnel, Morningstar's director of fund research, noted the improvement at Janus after the firm ranked second among large firms for asset-weighted average category ranks from mid-2006 to mid-2009.
"Maybe the most impressive thing is that Janus has rebounded so strongly from scandal and a horrific performance in the previous bear market," Kinnel said.
The top wealth creators were the industry's three largest firms-American Funds, Vanguard Group and Fidelity Investments-which created $191 billion, $189 billion and $153.1 billion, respectively. Annualized asset-weighted total returns at the firms were 4.1% at American Funds, 2.9% at Vanguard and 2.1% at Fidelity.
The categories that created the most wealth: intermediate-term bond, up 6.35% a year on average and creating $193 billion for shareholders; large-cap blend, up 0.2% and creating $144 billion, and moderate allocation funds, with annualized returns of 4.4% that swelled investors' wealth by $125 billion.
But as Morris noted in the study, investors shouldn't read the results as a measure of future gains.
"Growth and technology funds began the decade with hefty asset bases, their popularity buoyed by the dot-com boom," she wrote. "When the bubble burst, investors fled for the exits in droves. That classic cycle of greed and fear always ends badly for investors, and the extent of the damage is made clear by the wealth collectively destroyed by these funds."
The four biggest wealth destroyers were also all involved in the mutual-fund scandals of 2003, where some large investors were allowed to trade after-hours to their advantage while hurting the remaining investors. That suggests management was an issue at the firms, and all of them have seen overhauls in recent years.
Janus had five chief executives in the decade and saw many high-profile managers leave, while Putnam, now part of Power Corp. of Canada, revamped senior leadership under former Fidelity Investments Chief Operating Officer Bob Reynolds.
Last month Putnam was named the No. 1 overall fund family for 2009 by the Lipper/Barron's Fund Families Survey, noted a firm spokeswoman. Barron's, like MarketWatch, the publisher of this report, and Dow Jones Newswires, is a unit of Dow Jones & Co.
At Invesco AIM, which changed management post-scandal, a spokesman also pointed to the firm's improved performance. "Morningstar has publicly recognized the significant enhancements we've made to our investment culture and risk management processes in recent years, and our asset-weighted Morningstar star-ratings are the best they've been in a decade," he said.
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