Touchstone Large Cap Value has been down this year, partly because this vehicle has been parked on Lover's Lane with Fannie and Freddie.

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Volatility is a two-way street, but nobody ever complains when the way is up.

So if the Touchstone Large Cap Value Fund was crushing both its peer group and the Standard & Poor’s 500 Index this year, investors probably would be inclined to enjoy the ride rather than pulling to the side of the road to see what’s going on under the hood.

Alas, Touchstone Large Cap Value has been down this year, and investors looking for an explanation can get it by popping the hood, examining the holdings and seeing that this vehicle has been parked on Lover’s Lane with Fannie and Freddie.

With the largest asset concentration in Fannie Mae and Freddie Mac of any general-purpose fund — more than 11 percent of assets were in the two troubled mortgage firms — Touchstone Large Cap Value (TLCAX) earns the distinction of Stupid Investment of the Week.

Stupid Investment of the Week highlights the concerns and conditions that make a security less than ideal for the average investor. It is written in the hope that spotlighting trouble in one situation will make it easier to root out elsewhere. Typically, a stock or mutual fund doesn’t earn the distinction unless there’s a logical case for investing in the security right now; in the case of the Touchstone fund, it’s hard to have ever been able to make that case.

The Touchstone fund opened in early March of 2006. In 2007, it lost 27 percent and has followed this year with an even-bigger decline; the fund hasn’t attracted much in assets — it currently has less than $25 million — and for good reason.

And it’s that good reason, plus a few others, why this fund is the Stupid Investment of the Week.

Touchstone Large Cap Value is managed by John Schneider, who amassed an impressive record working with his brother Arnie at Schneider Value Fund — which happens to have the second-biggest exposure to Fannie and Freddie among general-equity funds — and Allianz OCC Renaissance Fund. Schneider crushed the bulk of his peer group in those other funds, and he didn’t do it by being timid.

His portfolios typically hold from 25 to 50 stocks, and sometimes follow a style that is ultra-contrarian.

When that kind of strategy runs good, it can be very good. With Touchstone Large Cap Value, it has meant big stakes in companies like Countrywide Financial — and Fannie and Freddie — at just the wrong time.

Here’s where volatility comes into the picture again. During those good times, nobody squawks.

They also don’t consider just how bad things might get if the market turns. Back during the Internet bubble days of the late 1990s, investors went for concentrated funds — the better to turbocharge performance — and loved the results; that is, until Internet stocks cratered and these funds imploded.

“One inherent challenge in a concentrated fund is that you are giving your money to one guy and saying ‘Boy, I hope he’s good because he’s only buying 20 or 30 things,’ and buying so few issues that increases the necessity to actually be a very good stock picker,” says Gregg Brewer, executive director of research for Value Line.

“If everything were to turn around and things take off, [Schneider] would be heralded as the genius who saw the market negativity,” Brewer said. “Of course, given how things look at this moment, nobody is calling him a genius right now.”

The issue for an investor buying into a concentrated fund is whether they can ride through the down periods.

“It’s not the concentration that should bother an investor, it’s what the fund is choosing,” said Thurman Smith of Equity Fund Research in Malden, Mass. “If you don’t know what a fund is doing, what they are buying, then concentration becomes an issue, so spend your time drilling down to the holding levels. … In this case, if I saw those things under the covers, I’d say goodbye to the fund.”

Indeed, Touchstone Large Cap Value in some respects looks more like a financial-services sector fund than a diversified-equity fund. According to investment researcher Morningstar, more than 35 percent of the fund’s assets are in financial services stocks. Another 15 percent is in consumer-services stocks, meaning that half of the portfolio is in areas that have been crunched by the economy and the mortgage/credit crisis.

That’s a recipe for landing in the bottom 2 percent of a peer group for every time period Morningstar tracks. From ranking at the bottom in one-day performance — a sign of just how volatile the portfolio can be — to one-week and up through one year. The fund’s history is less than three years, but it’s worth noting that in the fund’s first full calendar year, 2007, it ranked dead last in the large-cap value category.

“If you believe in what the manager is doing, you want to give a fund time,” Brewer said. “But if a fund surprises you — for the bad — and you look at the portfolio and don’t like what you see, you may need to own up to the fact that you picked a fund that is wrong for you, even if it someday might turn around.”

Chuck Jaffe is senior columnist for MarketWatch. He does not own or hold short positions in any securities covered by Stupid Investment of the Week. If you have a suggestion for Chuck Jaffe’s Stupid Investment of the Week or a comment about this week’s column, you can reach him at or Box 70, Cohasset, MA 02025-0070.