5 funds to start fixing your 401(k)

By Tim Middleton

This is the second of a two-part series on how some of the biggest mutual funds have fared in the financial meltdown. Part one: "5 huge funds failing your 401(k)."

Last week I profiled five huge mutual funds that recently have suffered sharp falloffs in performance. This week I'd like to examine another five funds, some of which are likely in your 401(k) plan, that have stuck to their A games despite a year's worth of turmoil and turbulence.

If, like so many of us, you're retooling your 401(k) after this very rough year, this is a good place to start looking.

Vanguard Primecap (VPMCX), Fidelity Blue Chip Growth (FBGRX), American Funds American Mutual A (AMRMX), Vanguard Small Cap Growth Index (VISGX) and Oakmark International I (OAKIX) have each lost tons of money this year, but they've lost less than most of their rivals. They or funds like them can form the foundation of a dream retirement account.

Vanguard Primecap

This amazing fund never even seems to wobble. Over the past 10 years it has been ranked among the top 2% of large-capitalization growth funds, and it remains on that lofty plane this year, having managed to decline only 31.9%, as of Nov. 6, nearly 8 percentage points fewer than the S&P 500 Index ($INX).

"Very few managers in the mutual fund universe have as good a long-term record as these guys," says Daniel P. Wiener, the editor of the Independent Adviser for Vanguard Investors newsletter, who adds that he put two children through college by investing in the fund. "They continue to buy growth companies at value prices."

Growth funds often founder in down markets because their managers typically are willing to pay premiums to capture the group's above-average earnings. Primecap, on the other hand, pays about 10% less than its rivals on such measures as price to book and price to sales.

Primecap is closed outside the 401(k) world, but the same management team also runs three funds that are open: Primecap Odyssey Aggressive Growth (POAGX), Primecap Odyssey Growth (POGRX) and Primecap Odyssey Stock (POSKX).

Fidelity Blue Chip Growth

Also unwilling to pay up for growth, this fund has been dragged up by a relatively new manager, Jennifer S. Uhrig, at the helm just two years. Formerly a performer in the bottom half of its Morningstar category, this Fidelity fund now ranks in the top third, with a year-to-date performance of minus 38%, not quite 2 percentage points better than the market.

The fund's biggest weightings, in Microsoft (MSFT, news, msgs) and Cisco Systems (CSCO, news, msgs), have dragged it down this year, but a number of others have proved more timely, including Wal-Mart Stores (WMT, news, msgs) and Genentech (DNA, news, msgs). (Microsoft is the publisher of MSN Money.)

Morningstar faults the fund for hewing too closely to its Russell 1000 ($RUI.X) market benchmark. Because managers are evaluated in comparison with indexes, index hugging is an occupational hazard. But compared with the S&P 500, the fund shows considerable independence, with about one-half the market weighting in financials, underweighting in energy and overweighting in technology.

Since it's rare for growth funds to excel in a difficult market, even against each other, Uhrig's feat in 2008 is particularly noteworthy.

Continued: 3 more to consider

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