Wealth Destroying Mutual Fund Companies Hurt Their Customers

Independent research service Morning-star Inc. says several of the largest mutual fund companies were collective "wealth destroyers" during the period 2000-2009.

Janus Capital Group topped the list: its funds posted a 10-year asset weighted total return of negative 1 percent per year. Janus lost some $58 billion for its investors over the decade, Morning-star said.

Putnam Investments lost $46 billion of its investors' money during the period, followed by Alliance Bernstein Holdings, losing $11.4 billion, and Invesco AIM, losing $10 billion.

The four fund families invested heavily in technology and growth stocks, which Morningstar said were the biggest wealth-destroying investment categories. Large capitalization growth stock funds collectively lost $108 billion during the decade, while technology-oriented funds lost $63 billion.

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 of Morningstar.

She also noted that growth and technology stocks have done better in recent years, but statistics on the flows of investor money into and out of mutual funds shows that investors fled when things tanked and they didn't capitalize on the subsequent recovery in the sectors.

"When the bubble burst, investors fled for the exits in droves," she said. "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."

Morningstar said the mutual fund industry's three largest firms-Vanguard, American, and Fidelity- were the biggest wealth creators during the decade, creating some $533 billion worth of wealth during the decade.