Regardless of the fact that some of the biggest large-cap mutual funds lost an average of 40% in 2008, the asset managers running them took home hundreds of millions of dollars in fees apiece for each of the funds alone, Morningstar found through an analysis of fiscal year-end data.

Three of the biggest funds from American Funds and two from Fidelity Investments fell a combined average of 37% in 2008 yet reaped more than $300 million apiece in the past fiscal year. One of the most profitable funds ever, the PIMCO Total Return Fund, rose 4.8% and generated total fees of more than $1 billion.

Of course, this is no surprise to those in the industry, as funds are perfectly well entitled charge a percentage of assets under management and would obviously have reaped much greater profits had the markets risen. But Morningstar and MarketWatch are painting this in an unflattering light to retail investors as if investment advisors are wrong to continue to charge fees even when the markets fall.

The funds were: American Funds Growth Fund of America (which fell 39.1% but collected management fees of $351.2 million), American Funds Capital World Growth & Income Fund (down 38.4% with $375 million in fees), American Funds EuroPacific Growth Fund (down 40.5%; $381.6 million in fees), Fidelity Contrafund (down 37.2%; $474 million in management and performance fees) and Fidelity Diversified International Fund (down 45.2%; $382.1 million in management and performance fees).

“[The results] argue that aligning end performance for fund shareholders with fees is important,” Karen Dolan, director of fund analysis and author of the study, told MarketWatch. “We’ve long been advocates of performance-based fees.”

Fund companies should make their fees more transparent, owe greater economies of scale to investors and should tie more fund fees to performance, the Morningstar report says. “The accounting is very fuzzy because there’s no clear standard for mutual funds to show where the money goes,” Dolan added.

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