Markets

The Bear Mauls Our Stock Picks

But a bear fund we suggested shot out the lights.

By Jeffrey R. Kosnett, Senior Editor

David Landis, Contributing Editor

From Kiplinger's Personal Finance magazine, May 2009

In How to protect your Money Now (April 2008), we cited 12 stocks that we thought would hold up well during hard times. Our picks in two industries -- drugs and energy distribution -- did just that. But our other choices sank beneath the waves.

In all, the dozen lost an average of 35% (including dividends) through February 6, edging Standard & Poor's 500-stock index by less than one percentage point. Teva Pharmaceutical (symbol TEVA) lost just 8% over the period, reinforcing our belief that this is a stock worth holding for years (see 7 Blue Chips to Hold Forever). Drug giant Eli Lilly (LLY) fell 22%, a decent showing. Royalty trusts San Juan Basin (SJT) and Cross Timbers (CRT) and pipeline operator Magellan Midstream (MMP) surrendered 26%, on average. The big losers were Dow Chemical (DOW), DuPont (DD) and Whirlpool (WHR), down 70%, 43% and 59%, respectively.

Not all of our picks were disasters. We suggested hedging your bets with Hussman Strategic Growth fund (HSGFX). It lost just 6%. Best of all was our recommendation of Prudent Bear (BEARX). The fund, now called Federated Prudent Bear, gained 22%.

Outside of Treasuries, bonds weren't much of a haven for investors over the past year. Our safest pick in Bond Funds Reduce Risk (April 2008), Fidelity Advisor Government Income (FVITX), returned 6.1%, thanks to the big rally in Treasuries. Three of the other bond funds we labeled "safe" held their losses to less than 1%. They are Dodge & Cox Income (DODIX), Harbor Bond (HABDX) and TCW Total Return (TGLMX). A fourth, Vanguard Inflation-Protected Securities (VIPSX), lost 5.1%, but we think its built-in inflation shield will prove a tremendous advantage in the years ahead.

Among municipal-bond funds we spotlighted, Vanguard Short-Term Tax-Exempt (VWSTX) returned 3.4%, and Fidelity Intermediate Municipal Income (FLTMX) gained 2.1%. But the riskier T. Rowe Price Tax-Free High-Yield (PRFHX) dropped 17.4%.

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