How 401(k) Performance Is Shaping Up

Checked on your 401(k) retirement plan mutual funds lately?

The year isn’t even two months old, but markets have been so volatile that performance of popular 401(k) stock funds is all over the map.

Indeed, the performance gulf between the best and worst funds in The Times’ regular tally of the largest 401(k) funds is a whopping 34 percentage points year-to-date.

Of course, 401(k) assets are supposed to be long-term assets. You shouldn’t make big changes in your 401(k) mix just based on the trend of a few weeks.

Still, if you failed to do a year-end checkup of your 401(k) funds to determine if your asset mix is still appropriate, this would be a good time to take a look at how well your 401(k) money is working for you.

The following is a capsulized look at performance trends in popular 401(k) stock funds. Funds are ranked in order of their year-to-date total returns (principal change plus any dividend or interest income), through Friday.

* PBHG Growth

Category: Mid-cap growth. Assets: $4.4 billion. YTD return:: 22.1%.

Analysis: Small technology stocks have the “big mo” right now in this volatile market. And Gary Pilgrim’s once-reviled fund is probably the closest thing to a small-cap or mid-cap tech fund you’ll find in many 401(k) plans.

If you feel like jumping in, just remember that momentum can change at any moment. In 1995, PBHG Growth was similarly hot--just before it went into a three-year-long tailspin.

* Fidelity Growth Company

Category: Large growth. Assets: $27 billion. YTD return: 19.6%.

Analysis: Huge bets in technology and health care are driving this growth fund’s big gains, while the average large-growth-stock fund is down 0.7% year to date, according to fund-tracker Morningstar Inc.

Another reason for Fidelity Growth’s recent success is manager Steven Wymer’s willingness to look at the smaller end of the large-cap stock universe.

* T. Rowe Price New Horizons

Category: Small growth. Assets: $6.1 billion. YTD return: 12.9%.

Analysis: A number of small-growth-stock funds are up 20% to 30% already this year. By comparison, New Horizons--with a slight under-weighting in tech because of manager John Laporte’s concerns about valuations--looks kind of mediocre.

On the other hand, the fund’s 12.9% gain exceeds the Russell 2,000 small-stock index’s 8.1% rise this year. And most 401(k) participants are lucky if they’ve even got one small-growth fund to choose from in their plan.

* Putnam New Opportunities

Category: Large growth. Assets: $18.3 billion. YTD return: 7%.

Analysis: Amazing what a little technology will do for a fund. A renewed emphasis on so-called new economy stocks--like Cisco Systems, Nokia and JDS Uniphase--helped power this 10-year-old fund to a 1999 gain of 70%.

And it’s off to a fast start this year. With a 53% stake in tech today (versus 19% in 1997), New Opportunities will continue to do OK--so long as tech does.

* Growth Fund of America

Category: Large blend (growth and value). Assets: $27.4 billion. YTD return: 6.4%.

Analysis: A majority of this fund’s assets were recently held in tech and telecom names, an unusually aggressive bet for a portfolio run by the rather conservative American Funds group.

But you can’t complain about the results. If you’re looking to invest in the new economy--minus tiny Internet start-ups--this is one of the rare funds that buys and holds those stocks (as opposed to trading in and out of them). And it ranks in the top 10% of its peers over the last one, three, five, 10 and 15 years.

* Putnam Voyager

Category: Large growth. Assets: $24.1 billion. YTD return: 2.4%.

Analysis: Fund managers Robert Beck, Roland Gillis and Charles Swanberg understand that you don’t need to venture out much further than the tech and telecom sectors to generate positive returns in this stock market.

Sure, some of Voyager’s big telecom bets aren’t doing nearly as well so far this year as they did in 1999--for instance, AT&T; Liberty Media, the fund’s top holding, is off 11% year to date. But overall, Voyager is still in positive territory this year, which is saying something.

* EuroPacific Growth

Category: Foreign stocks. Assets: $34.8 billion. YTD return: 1.9%.

Analysis: This is by far the biggest foreign stock fund in the country, with nearly triple the assets of its next-largest rival. Yet despite its size, which precludes it from buying really small foreign stocks, this fund still ranks in the top 25% of its peers over the last year and ranks as the No. 1 foreign fund over 10 years.

And thanks to a bigger-than-average stake in emerging markets, EuroPacific is up more than its average peer year to date. But don’t let the emerging markets stake scare you. Morningstar considers the fund 21% less risky than the average foreign fund.

* Janus Fund

Category: Large growth. Assets: $42.9 billion. YTD return: 1%.

Analysis: There may not be a more respected name in growth-stock investing right now than Janus--even though this fund is trailing some of its growth-stock peers this year.

New manager Blaine Rollins recently took over for Jim Craig. No worry: Almost all the equity funds in the Janus complex invest in a similar way, mostly sticking with large growth and tech stocks.

Big positions in names such as Cisco Systems and Sun Microsystems are keeping this fund well ahead of the market averages.

* Fidelity Diversified Intl.

Category: Foreign stocks. Assets: $5 billion. YTD return: -0.8%.

Analysis: Even manager Gregory Fraser’s time-tested quantitative stock-picking model--he searches for stocks with earnings momentum and reasonable valuations--hasn’t been able to overcome the impact of the strengthening dollar this year, which eats into foreign-stock gains.

But this fund is still coping better with the dollar’s surge than many other major foreign funds.

* T. Rowe Price Intl. Stock

Category: Foreign stocks. Assets: $12 billion. YTD return: -1.5%.

Analysis: Here’s a consistent, if perhaps boring, foreign stock fund that routinely delivers decent returns by investing in big blue-chip stocks, mostly in Western Europe and Japan.

The fund is down modestly this year after surging nearly 35% last year. Again, the dollar isn’t helping.

* Fidelity Contrafund

Category: Large growth. Assets: $45.1 billion. YTD return: -2.5%.

Analysis: This Fidelity growth fund has been acting more like a value fund recently, according to Morningstar. Indeed, relatively small tech and health-care stakes are a big reason why Contrafund is under-performing its average peer over the last one, three and five years.

Hint: Maybe this isn’t the best fund to satisfy your large-growth allocation.

* Scudder International

Category: Foreign stocks. Assets: $4.8 billion. YTD return: -2.5%.

Analysis: While the average foreign stock fund is up 0.9% this year, Scudder International is down slightly. Blame, in part, the fund’s bigger-than-average stake in Japan.

It’s not that Japanese stocks are weak. In yen terms, the Nikkei 225 index is up more than 4% year to date. But the strengthening dollar--a buck now buys more than 111 yen, versus just 101 on Jan. 3--means the Nikkei’s gain in yen is a decline of more than 3% in dollar terms.

Over time, though, Scudder has proved itself, beating at least 70% of its peers over the last one, three, five and 10 years.

* Fidelity Blue Chip Growth

Category: Large growth. Assets: $27.3 billion. YTD return: -3.5%.

Analysis: Blue Chip Growth is doing worse than the average large growth fund this year, thanks to its just average weighting in tech stocks. But thanks to a bigger-than average stake in the health-care sector, the fund is still outperforming the S&P.;

This fund may be more appropriate for satisfying your core U.S. equity allocation, rather than your growth-stock position, due to its somewhat conservative interpretation of “growth.”

* Investment Co. of America

Category: Large value. Assets: $56.1 billion. YTD return: -5.5%.

Analysis: Here’s a rarity--a true value fund that isn’t disappointing this year, relatively speaking.

Despite under-weighting technology and health-care stocks relative to the S&P; 500, Investment Co. of America is still managing to beat the S&P.; Not many large-value funds are doing that.

True, the fund is still losing money year to date. But don’t count it out just yet. This fund hasn’t had a losing calendar year since Jimmy Carter was in the White House.

* Vanguard U.S. Growth

Category: Large growth. Assets: $18.2 billion. YTD return: -6.1%.

Analysis: Size really matters to fund managers David Fowler and J. Parker Hall. The median market capitalization of stocks in this portfolio is $124 billion, making it truly a large-cap growth fund.

But smaller growth stocks are where the action is this year, not larger stocks.

Thanks to its near-40% stake in tech, however, U.S. Growth is still losing less than the S&P; 500. As long as growth investing continues to shine, U.S. Growth should continue to be a good choice for long-term investors.

* American Century Ultra

Category: Large growth. Assets: $43.2 billion. YTD return: -6.7%.

Analysis: It’s rare for a large-growth stock fund to under-weight tech, yet still beat the S&P; 500.

That probably says something about the stock-picking skills of co-managers James Stowers, Bruce Wimberly and John Sykora. Ultra will never shoot the lights out, given its size and temperament. But there probably are still some 401(k) investors out there who don’t mind a steady grower.

* Fidelity Magellan

Category: Large blend. Assets: $100.8 billion. YTD return: -7.1%.

Analysis: Under Robert Stansky, the nation’s largest fund righted itself over the last two years. Without overemphasizing tech or health-care stocks, Stansky was able to deliver index-beating results in 1998 and 1999, which should more than satisfy long-term investors.

This year, Magellan is losing money, but less so than the Vanguard Index 500 fund. Score one for active management?

* Templeton Foreign

Category: Foreign stocks. Assets: $13.2 billion. YTD return: -7.9%.

Analysis: Don’t confuse this fund with Templeton Institutional Foreign Equity, which is also found in some 401(k) plans.

Templeton Foreign makes much larger bets in emerging markets than its foreign-fund peers. Given that the average emerging-markets fund is up more than 5% year to date, you’d expect this fund to be doing better than it is, even allowing for the dollar.

Though the fund finished in the top half of its category in 11 of the last 12 calendar years, it wouldn’t hurt to keep an eye on it this year. Something isn’t clicking.

* Vanguard Index 500

Category: Large blend. Assets: $100.4 billion. YTD return: -8.3%.

Analysis: After five straight years of 20%-plus returns, the granddaddy of index funds is finally looking tired.

Vanguard 500 simply tracks the Standard & Poor’s 500 index of blue-chip stocks, which has slumped more than 8% this year, weighed down by financial, industrial and energy stocks.

But with rock-bottom management fees of 0.18% of assets, this is still the best choice for most investors who want to passively index their money at low cost.

* Fidelity Growth & Income

Category: Large blend. Assets: $44.9 billion. YTD return: -8.3%.

Analysis: This large blend fund has been acting more like a large value fund recently.

Investors who want to emphasize the “growth” in the fund’s name should be monitoring it closely; you may not be getting what you thought you bought into.

* Neuberger Berman Guardian

Category: Large value. Assets: $2.8 billion. YTD return: -9.4%.

Analysis: Timing hasn’t been this fund’s strong suit lately. Guardian recently began buying bigger stocks. Since 1998, the median market capitalization of the stocks it owns has nearly doubled.

But that shift in strategy has taken place just as large-cap stocks are cooling down and small-caps are heating up. It’s yet another in a series of miscues for this once great fund. Over the last three years, Guardian has delivered money-market-like gains of just 2.5% a year.

* Fidelity Equity-Income II

Category: Large value. Assets: $15.8 billion. YTD return: -10%.

Analysis: Equity-Income II is down slightly more than the 9.1% loss of the average large value fund this year, partly because of its lower-than-average stake in tech and higher-than-average position in industrial cyclicals.

But you may want to give this fund additional time. Fidelity recently announced a slew of manager changes, and Steve DuFour, previously the equity-side manager of the Fidelity Balanced Fund, is taking over. DuFour is considered a rising star at Fidelity, which is saying something. After all, he is a value manager.

* Fidelity Adv. Growth Opp.

Category: Large value. Assets: $21.5 billion. YTD return: -10.2%.

Analysis: Bettina Doulton, former manager of Fidelity Equity-Income II, has taken over this fund for George Vanderheiden, who is retiring.

It’s not as if Doulton posted eye-popping numbers at her previous fund. But give this fund some time: At Equity-Income II, Doulton was forced to hunt for dividend-paying stocks. She won’t have that handicap here.

* Putnam Fund for Growth & Income

Category: Large value. Assets: $20.0 billion. YTD return: -10.7%.

Analysis: Last year, this fund produced some income and virtually no growth. So much for its name.

This year, the fund is doing even worse, losing more than 10% in total return in less than two months. Unless financial stocks--which Growth & Income over-weights--are ready to rebound, this fund will keep struggling.

* Vanguard Windsor II

Category: Large value. Assets: $24.3 billion. YTD return: -11%.

Analysis: The good news is that Windsor II is still doing better than its sibling Windsor. The bad news is that there’s not much more good news than that.

Windsor II is losing far more than the S&P; 500 thus far this year. And given that Windsor II’s managers still favor dividend-paying stocks, it might continue to lag in a market that favors growth.

If you think old-fashioned value investing is headed for a major comeback, this is a great fund. But if you don’t . . .

* Washington Mutual Investors

Category: Large value. Assets: $53.1 billion. YTD return: -11.2%.

Analysis: This team-managed fund only invests in stocks that have paid dividends in nine out of the last 10 years. That rules out just nearly every tech stock and rules in a slew of banks.

You do the math. If value stays out of favor, so will this fund, in a major way.

* Vanguard Windsor

Category: Large value. Assets: $15.3 billion. YTD return: -12.2%.

Analysis: Thanks to its disciplined approach to value investing, Windsor’s portfolio is among the “cheapest” around, based on the median price-to-book ratio of its stocks. Unfortunately, that means the fund underweights tech and telecom and overweights industrial cyclicals and financial stocks.

The few remaining value investors out there may still love this fund, but some shareholders are beginning to walk away. It has been a dismal three years.

* Fidelity Equity-Income

Category: Large value. Assets: $21.2 billion. YTD return: -12.2%.

Analysis: With only a hint of tech stocks in its portfolio recently, Equity-Income is badly trailing its peers. Making matters worse, the fund’s manager, Steven Peterson, now has the added burden of having to manage the equity portion of the Fidelity Puritan fund in addition to his job running Equity-Income.

This fund should be disappointing even hard-core value investors.

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Paul J. Lim can be reached at paul.lim@latimes.com.

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Tracking Some Major 401(k) Funds

The stock mutual funds in this list include some of the most popular offered in company 401(k) retirement plans nationwide and in Southern California. Shown is each fund’s asset class (i.e., the types of stocks it owns, as explained in the footnote), along with year-to-date gain or loss, 1999 return and three-year average annualized return through Friday. Funds are ranked in order of year-to-date returns, which is also how they are listed in the accompanying story.

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Morningstar asset class explanations: MG=mid-sized growth stocks; LG=large growth stocks; SG=small growth stocks; LB=large blend (growth and value stocks); FS= foreign stocks; DH=domestic hybrid (usually stocks and bonds); LV=large value stocks

Sources: Morningstar Inc., Times research