Mutual Fund Rankings, 2008
Read our take on which of the one-, three-, five-, ten- and 20-year winners are worth buying now.
It was an ugly year for fund investors. Most stock funds bled red ink as share prices plunged because of worries that falling housing prices and a growing number of mortgage defaults would destabilize the nation's financial system. The collapse of Bear Stearns in March and growing fears over the summer that mortgage giants Fannie Mae and Freddie Mac might follow gave the bears plenty of ammunition. Adding to the gloom was the rise in fuel prices, which serve as a de facto tax on hard-pressed Americans and wreak havoc on industries such as airlines, autos and trucking.
The key to success over the past year was to hold funds that were stuffed with, well, stuff. Natural-resources funds soared an average of 35% over the past 12 months to July 1, while precious-metals funds did nearly as well (33%). Among diversified funds, Ken Heebner, manager of CGM Focus and CGM Mutual, kept up his remarkable performance of recent years by betting heavily on minerals and energy companies.
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The best of a sorry lot of diversified funds was the large-company growth category. That segment lost 6.1%, on average. Chaos in the financial sector was particularly harmful for value funds. The average financial-sector fund lost 34% over the past year, while large-company value funds, which often own a lot of banks and insurers, surrendered an average of 17%. Bill Miller, the bargain-hunting manager of Legg Mason Value who was lionized for once having beaten the market 15 straight years, cost his shareholders 36% over the past year.
Investors found little relief in foreign markets. The average diversified international-stock fund dropped 10% over the past year. But Latin America funds bucked the trend: They earned 25%, on average.
To see which funds did best in 11 categories over a variety of periods and which we think will perform well in the future, see below and our ONLINE FUND RANKINGS that let you sort by style and type. You also can DOWLOAD OUR COMPLETE RANKINGS.
LARGE-COMPANY GROWTH FUNDS: Winning by losing less
It may be cold comfort, but large-company growth funds did better than any other diversified domestic-stock category over the past year. CGM Mutual's (symbol LOMMX) appearance here is a bit of a surprise, given that it generally keeps at least one-fourth of its assets in bonds or cash. What isn't surprising is that a fund run by Ken Heebner, whom Kiplinger's has dubbed "The Savviest Stock Picker in America," is at the top of the charts.
Heebner invests in a relative handful of stocks -- ones that he thinks are beneficiaries of major economic trends -- and trades them frenetically. Jordan Opportunity (JORDX), which debuted in 2005, looks a lot like a Heebner-run fund. Jerry Jordan owns relatively few stocks and trades quickly. Morningstar puts Kinetics Paradigm (WWNPX), a member of the Kiplinger 25, in this category, but we consider it a go-anywhere fund.
LARGE-COMPANY BLEND FUNDS: Hewing closely to the market
These funds, which focus on stocks with a mix of value and growth attributes, tend to closely track the overall market. So the category's poor performance lately isn't surprising. A standout is CGM Focus (CGMFX, a member of the Kiplinger 25. Manager Ken Heebner's brilliance at picking investment themes and the stocks that go best with them is in full bloom with this fund. Focus typically owns only about 20 stocks and can sell short.
Another volatile fund worth considering is Janus Contrarian (JSVAX). Manager David Decker stumbled in the past year, but, like Heebner, he scours the globe for good deals and finds more winners than losers. Two interesting funds with value bents among the 20-year winners are Longleaf Partners (LLPFX) and Sequoia fund (SEQUX). The latter had been closed to new investors for 26 years before reopening in May.
LARGE-COMPANY VALUE FUNDS: Between a rock and a hard place
This category had a tough year. The credit crunch pummeled financial stocks, which are typically prominent in a value portfolio. ProFunds Basic Materials UltraSector (BMPIX) rode stocks of chemical makers and metal producers to the top of the charts. But calling this a large-company value fund is a stretch: It's linked to an index of materials companies but owns enough different industries to qualify as diversified.
Amana Income (AMANX)sheltered shareholders from the carnage in financials because it invests according to Islamic principles, which forbid lending money. Susan Byrne buys brand-name businesses that generate a lot of sales overseas for her Gamco Westwood Equity AAA (WESWX). Dodge & Cox Stock (DODGX) has performed poorly recently but remains a fine choice for investors with the patience to stick with this patiently run fund.
SMALL AND MIDSIZE GROWTH FUNDS: All over the map
Because Morningstar considers funds that invest in companies of any size to be mid-cap specialists, you'll find everything from microscopic start-ups to hulking blue chips in this category. Janus Orion (JORNX) is one fund that crosses size categories. It's been a consistent performer, although manager John Eisinger took over only in January.
Loomis Sayles Mid Cap Growth (LAGRX) coasted into 2008 after delivering a 39% gain in 2007, partially thanks to a hefty stake in energy. American Century Giftrust (TWGTX) and American Century Heritage (TWHIX) sport nearly identical portfolios. Managers David Hollond and Greg Walsh employ a momentum strategy at each, buying com-panies with accelerating profits. Don Hodges and son Craig have produced a fine long-term record at Hodges (HDPMX) fund by investing wherever they see rapid earnings growth.
SMALL AND MIDSIZE BLEND FUNDS: Riding right down the middle
This is a catch-all category, consisting of funds that invest in a combination of growth and value stocks and those that buy companies of any size. Icon Materials invests almost entirely in chemical, metal and other materials companies, owning stocks in enough industries to count as diversified. At Fidelity Leveraged Company (FLVCX), manager Tom Soviero buys into companies that carry a lot of debt on their balance sheets. His aggressive approach continues to pay off with category-trouncing returns.
Neil Hennessy uses a quantitative system to pick 30 stocks for Hennessy Focus 30 (HFTFX). He holds the stocks for a year, then repeats the process, dumping the stocks (most of them) that no longer pass muster. The Royce family specializes in undervalued small-company stocks; all of its offerings on this list are good choices.
SMALL AND MIDSIZE VALUE FUNDS: The cream of a crummy crop
The long-term records are fine, but nobody's made money lately in this category, which sports the worst one-year returns of all diversified stock groups. Heartland Value Plus (HRVIX) stayed afloat with some smart bets on energy companies and a 13% stake in cash.
Intrepid Small Cap (ICMAX) had 37% of assets stashed in the green stuff at the end of September 2007, just before the market turned. Since then, the fund's managers have reduced cash holdings to 19% of assets. Janus Mid Cap Value's (JMCVX) consistent long-term record and methodical approach may entice investors seeking a low-risk play on the category. For a peppier approach, consider Royce Opportunity (RYPNX). The fund, which has about half of assets in "microcap" stocks, has gained as much as 73% one year and lost as much as 17% another over the past six calendar years.
HYBRID FUNDS: A good year for hedgers
Hedge-fund-like funds topped this category over the past year. Hussman Strategic Total Return (HSTRX) mainly holds cash and bonds, but adds stocks of utilities, real estate investment trusts and mining companies to protect against inflation. It's a similar story for Permanent Portfolio (PRPFX). Although it lagged most stock funds during the 1990s, the fund has thrived lately on a mix that includes precious metals, natural-resources stocks and foreign currencies.
FPA Crescent (FPACX) successfully bet that financial stocks would fall in price. The fund also buys high-yield debt and small-company value stocks. This category also contains reliable balanced funds, such as Dodge & Cox Balanced (DODBX) and Vanguard Wellington (VWELX). Convertible-securities funds yield more than straight stock funds and usually hold up better in down markets.
DIVERSIFIED INTERNATIONAL FUNDS: Cooling off, finally
This once red-hot group provided little relief over the past year. Many of the funds that dominated the category over the past three years invest in small-company growth stocks and hold big positions in emerging markets. Driehaus International Discovery (DRIDX), for instance, uses a momentum approach to pick fast-moving small fry and has more than 20% of its assets in Asia and Latin America.
Harbor International (HIINX) is an exception. It focuses on well-priced blue chips. Julius Baer International Equity (BJBIX), another nimble broad-based fund, is closed to new investors. However, you can invest in the similar Julius Baer International Equity II (JETAX), a member of the Kiplinger 25. T. Rowe Price International Discovery (PRIDX) has earned an impressive long-term record buying reasonably priced stocks of growing midsize companies.
EMERGING-MARKETS FUNDS: Where the economic growth is
The champ over both the past year and the past five years is T. Rowe Price Emerging Europe & Mediterranean (TREMX). Clearly, Russian stocks, accounting for 61% of the fund's assets at last report, are a major reason for the fund's excellent returns. Russia, Egypt and Turkey account for 84% of its assets, so Emerging Europe can only loosely be considered a diversified emerging-markets fund.
Emerging markets are where the economic growth is these days, and their slice of the world economic pie is expanding every year. But remember that volatility comes with the territory. If you seek to allocate some of your stock portfolio to developing countries, three strong and well-diversified offerings are Fidelity Emerging Markets (FEMKX), T. Rowe Price Emerging Markets (PRMSX) and Driehaus Emerging Markets Growth (DREGX).
REGIONAL AND SINGLE-COUNTRY FUNDS: Viva Latin America, and Russia, too
You're asking for a nerve-wracking roller-coaster ride when you invest in country funds. Most of the past year's winners focused on Russian stocks. If energy prices sink, Russia stock funds are likely to go down, too. For now, the Russian economy is on a tear, thanks to high oil and natural-gas prices. Last year's champion, China, plummeted in the rankings because its stock market is (finally) taking a breather. The Indian market has also performed poorly so far in 2008, after a dazzling run. Both China and India have suffered from high energy prices and rising inflation.
Among emerging markets, Latin America has held up better. If regional funds tickle your fancy, consider T. Rowe Price Latin America (PRLAX) and Fidelity Latin America (FLATX), both strong funds. But fasten your seat belts: Turbulence comes with the territory.
SECTOR FUNDS: It's all about stuff
It's no surprise that funds focusing on commodities in general and energy in particular dominate the list of the past year's winners. In fact, the group was so strong that commodity funds dominate the long-term lists as well. Pimco CommodityReal-Return Strategy (PCRAX), a member of the Kiplinger 25, is a good choice for capturing returns of commodities themselves. Manager Mihir Worah seeks to track a commodity index and also invests in inflation-indexed bonds.
CGM Realty (CGMRX) may not sound like a commodity fund, but manager Ken Heebner defines real estate expansively, and at times he has filled his concentrated fund with mineral-rich com-panies that are mainly engaged in such things as production of copper or fertilizer. At last report, though, the fund had about 70% of its assets in traditional real estate stocks.