Bear market alters mutual fund landscape

— -- The bear market has utterly transformed the mutual fund landscape.

The largest mutual fund is no longer the American Funds' Growth Fund of America. It's Fidelity Cash Reserves, a $130.7 billion money fund.

The largest fund company is no longer Fidelity Investments. It's the Vanguard Group.

Only one stock fund remains among the five largest mutual funds.

The bear market has hit stock fund assets with a double whammy. This year alone, the Standard & Poor's 500-stock index has fallen 40%. And investors have fled the funds in record numbers.

Consider the Vanguard 500 Index fund, the largest stock fund five years ago, with $88.9 billion in assets in three share classes. Today, the fund has $80.7 billion, making it the seventh-largest fund.

The Vanguard 500 fund had $121.9 billion at the start of this year. Although the fund has fallen 41.1% this year through Thursday, it still has seen more investor money flowing in than flowing out.

What about Fidelity Magellan, the largest fund throughout much of the 1980s and 1990s? It now has $21.9 billion in assets, well below many other Fidelity stock funds, including Fidelity Growth Company ($25.2 billion) and Fidelity Contrafund ($51.5 billion).

Fidelity has slipped to the No. 2 spot among all fund companies, ranked by assets in stock, bond and money funds tracked by Lipper. Fido now tips the scales at $1.10 trillion, vs. $1.11 trillion for rival Vanguard. Third place belongs to American Funds, which has $806.7 billion in assets.

Only a few fund companies have seen their assets grow. Pimco, which specializes in bonds, has gained about 3%, to $220.3 billion, this year. And the ProFunds group, which offers a number of funds that rise when the stock market falls, has seen its assets soar 120% to $23 billion.

Fund companies charge investors a percentage of the fund's assets for their services, which means most fund companies have seen sharply reduced revenue this year. Many investors have moved their money to money market funds, which often charge less than stock or bond funds do.

To cut costs, fund companies are liquidating or merging small or unpopular funds out of existence. This year, 560 funds have been sent to oblivion, vs. 498 for all of last year, according to Lipper. "We have to assume that next year we'll see more fund companies eliminating funds that are persistently below $25 (million) to $50 million," says Geoff Bobroff, a Rhode Island mutual fund consultant.