Morningstar: Top 10 Mutual Funds For Net Cash Outflows

Kurt Brouwer August 1st, 2008

In this piece, Morningstar’s Director of Mutual Fund Research, Russel Kinnel, takes a look at the mutual funds that have lost the most new assets in the first half of the year. We also posted on a similar piece listing those funds that are gaining assets, see Morningstar: Top 10 Mutual Funds For Net Cash Inflows.

Regular readers of this blog should be familiar with at least one of these funds, Legg Mason Value Trust, which we have written about in the past.  Legg Mason, run by portfolio manager Bill Miller, has had a horrendous couple of years.  As a result, many investors are voting with their feet and taking assets out of the fund.  Miller is still a fine portfolio manager and one of these days, Legg Mason Value Trust, will turn around, but many investors in it are just giving up. For more on this fund, see U.S. Stock Funds - Worst Quarter Since 2002.

Fidelity has the dubious distinction of having four funds on the list.  Fidelity has long had many of the largest funds, so it is not all that surprising that several of their big funds would lose assets, but I’m sure they are wondering why they have been so blessed.  The American fund group has two funds on this list.  And, other well-known firms such as Schwab, Pimco, Legg Mason and Templeton are represented.  Here are brief descriptions of a few of the funds:

The 10 Funds Suffering The Biggest Exoduses (Morningstar Advisor, July 29, 2008, Russel Kinnel)

In a previous column, I looked at funds with the greatest inflows in dollar terms for the first half of 2008. This time, I am looking at the funds with the most net redemptions. You might well own one of these and are wondering what you should do.

1. Schwab YieldPlus Investor SWYPX
Net outflows of $4.8 billion or 73% of assets.
We’ve discussed this fund before, so I won’t beat a dead horse. It’s a troubled fund where outflows made a bad situation much worse and you’re probably better off bailing.

2. American Funds Washington Mutual AWSHX
Net outflows of $3 billion or 4%.
The good news is that in percentage terms the redemptions aren’t that great. The better news is that this is a great fund with a valuable dividend focus. However, the fund modestly lagged its peers from 2003 through 2006, which explains the lackluster reception the fund has gotten even though more recently it has modestly outperformed. I have as much faith in it as I do in the four American Funds that are on the list of biggest inflows.

3. Fidelity Dividend Growth FDGFX
Net outflows of $2.9 billion or 20%.
Charles Mangum’s emphasis on steady growing blue chips has made the fund singularly out of step with the markets this decade. Yet he has done quite well when the markets like that style and the fund is now free from the problem of asset bloat that once worried me. I understand why people are throwing in the towel, but there may yet be life in this fund.

…7. PIMCO Floating Income PFIAX
Net outflows of $2.5 billion or 64% of assets.
This fund seems to be getting redeemed in part because it was misunderstood. As the name implies, the fund’s yield floats with interest rates so it behaves quite differently from most funds with very short duration. I don’t see much use for it for individual investors but it’s a fine fund for professionals who understand how it works.

8. Templeton Growth TEPLX
Net outflows of $2.5 billion or 7%.
This fund has disappointed with management changes and sluggish returns. Its excuse had been that it had less in emerging markets–but this year that’s a good thing and it’s still lagging. Still, Templeton usually turns things around so I’m not counting it out.

9. Legg Mason Value LMVTX
Net outflows of $2.4 billion or 15%.
See my piece on the subject here.

10. Fidelity Advisor Diversified Intl FDVAX
Net outflows of $2.3 billion or 15%.
It’s not much, but the fund is outperforming its peers by about 70 basis points following two grim years. Like Fidelity Growth & Income, it’s hard to get excited about this fund. Still, if it does finish the year ahead of its peers, that will mean that Penelope Dobkin has outperformed in two of her four full calendar years at the fund, so it’s hardly a disaster.

Investors tend to pour money into funds that are doing well and pull it away from those that are having tough times.  In some cases, that makes sense.  Case in point: Schwab Yield Plus.  The fund was supposed to be a pretty conservative place to park cash, but it did not turn out that way.  In other cases, a good stock fund may be going through a rough patch and, therefore, investors may want to just ride it out.

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