Mutual funds: Keep it in the family

May 19, 2006

It's usually easier to invest with one major investment companythan to shop around. Here's a look at the strengths and weaknessesof five top firms.

With more than 200 companies hawking mutual funds to fit every investment goal, the range of choices can be mind-numbing. But rather than spending a lot of time creating an à la carte portfolio from several companies, consider the convenience of investing the bulk of your money in a single family of funds.

To help narrow your search, we took a look at five of the nation's top mutual fund families: American Century Investments, Fidelity Investments, MFS Investment Management, T. Rowe Price, and The Vanguard Group. Each manages billions of dollars in assets, with Fidelity and Vanguard responsible for in excess of $800 billion each. We only considered funds available to individual investors, either directly or through a financial adviser, and we concentrated on equity funds because their returns vary more than those of bond and money-market funds.

Of the five investment houses we critiqued, all offer funds that perform well above their benchmark indexes, and all have offerings that rank in the top 10 percent of their respective fund categories. Four out of five of the companies provide low expenses and charge no loads (i.e., commissions), allowing an investor to pocket higher returns. Even bigger savings may be available to those investing large amounts-say, greater than $100,000. And several fund families offer innovative choices, such as funds that decrease an investor's risk exposure as he nears retirement.

But if you want the benefits that come with a monogamous company relationship-fewer statements and easier transactions-Kinnel suggests choosing a fund family that houses a mutual fund megastore. Vanguard and Fidelity, for example, allow investors to purchase outside funds. "If you just want one account, you can still put most of your funds with one company, say at Fidelity," Kinnel says. "Then you can go buy a good large-cap value fund that isn't from Fidelity. That way, you can round out your lineup."

Before handpicking your portfolio, consider which funds-and which companies-merit your money. Breadth and quality of a family's offerings are vital factors. You'll also want to choose a group that values its investors by providing great deals and excellent service. Low expenses and extras, like low-fee financial advice, are good indicators of this.

American Century Investments

Based in Kansas City, this group offers investors 49 stock funds. American Century's strength lies in its fund management-most funds are supported by more than one analyst, many of them with significant experience in their respective areas of expertise.

Overcoming a bumpy year of underperforming value funds, the 48-year-old company offers many smart picks. The large-cap Equity Income Fund lands in the top 7 percent of its category based on five-year annualized returns, and the Value Fund is in the top 8 percent based on five-year returns. (Value funds invest in companies that managers consider bargain-priced relative to their true worth.)

An American Century innovation is its Long-Short Equity Fund. Combining long- and short-term strategies (like short-selling, a tactic used by hedge funds), the fund allows its managers to succeed in both rising and falling equity markets. This "market neutral" fund is available only through financial intermediaries because of its complex nature, American Century says.

For those focusing on retirement, American Century offers several features to help investors realize post-work financial goals. My Retirement Portfolios are targeted toward specific retirement dates. These "funds of funds" do all the thinking for investors. They're already diversified, and risk exposure is reduced as the investor gets closer to his retirement date.

Lacking in no major asset class, American Century offers enough mutual funds for a strong, diversified portfolio. The only caveat: Three of its six international funds are closed to new investors.