Investors who had gotten used to seeing negative signs in front of the returns for their portfolios can certainly take some satisfaction with the performance of the stock market this year. The average S&P 500 Index ($INX) fund dropped about 37% last year. This year, the average S&P index fund is up 20%.
Of course, there is still some way to go before investors get back to even territory, but the market is moving in the right direction -- at least for now.
The market's ride up has lifted some funds more than others. While some offerings are struggling, investors can easily find funds that are up 25%, 30% or 35%. There are more than 2,000 funds and share classes listed in our database that have returned double the S&P's performance this year.
So we recently turned the spotlight on them. To construct this screen, we suspended some of the usual guidelines we follow, such as focusing on long-term track records. This screen concentrates on just one detail: year-to-date performance.
Outperformance is easy right now
There are more than 10,200 funds and share classes beating the S&P 500 this year. We knocked out the funds that charge loads and have high fees and minimums. That left us with a universe of more than 500 offerings. From that group, we highlighted 15 funds that are up at least 30% in 2009 -- double the return of the S&P 500 -- and are run by well-known managers or are popular with investors. They are listed in the table below.We mention this list with some reluctance. After all, by favoring year-to-date performance, we are, in effect, putting our stamp of approval on performance chasing. That certainly isn't our intention. If you jump into one of these funds hoping for an additional 30% or 40% pop, you're bound to be disappointed. Many market watchers think the stock market is due for a pullback at some point.
"I think we may have some room to run," says Tom Karsten, the senior managing partner at Karsten Tax and Financial Management in Fort Worth, Texas. But Karsten is still being cautious and taking some profits. "Based on the (price-earnings ratios) we are seeing, the market is starting to get on higher price levels that can't be fundamentally supported."
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Study the trend
That said, by studying these funds, investors can pick out trends and then decide whether they have staying power.More than a dozen of the funds on our larger list are classified as emerging-market offerings. T. Rowe Price Emerging Europe and Mediterranean (TREMX), for instance, is up a whopping 113% this year. This concentrated fund invests more than half its assets in Russia, 17% in Turkey and almost 7% in Egypt. Several Matthews funds concentrating on India, China and South Korea are also up big.
These funds have benefited from investors willing to take on more risk as the market shows signs of improvement and from the general rise in commodity prices. If either of those pillars is shaken, though, the returns could easily cool off.
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Sectors such as technology, natural resources and real estate are turning in good numbers. In terms of mainstream fund categories, midcaps and multicaps have been the sweet spots. For example, Ariel (ARGFX) is up 46.4% this year. Aston Optimum Mid Cap (CHTTX) has gained 49.9% during the same period.
Lock in some gains
That said, there's likely much merit in following Karsten's advice. Since March, he has been adding weekly to his clients' equity holdings and is now taking some profits. In other words, his clients still have exposure to the market and will participate in any further rally, but they'll also benefit from locking in some gains."People want to regain the capital they lost. The tendency from a psychological standpoint is to be more aggressive," Karsten said. "I am still focusing on low fees, which will become more important if there is another low-return environment."
The criteria
The equity funds on our list are open to new money, require a minimum investment of less than $5,000 and charge an annual expense ratio of 1.5% or less.Funds on the run
| Fund | Assets (in millions) | Year-to-date return | Expense ratio |
|---|---|---|---|
Appleseed (APPLX) | $56 | 53.0% | 0.9% |
Ariel (ARGFX) | $1,714 | 46.4% | 1.1% |
Aston/Optimum Mid Cap (CHTTX) | $843 | 49.9% | 1.2% |
Buffalo Science & Technology (BUFTX) | $166 | 41.4% | 1.0% |
Chesapeake Core Growth (CHCGX) | $372 | 31.6% | 1.4% |
Columbia Value & Restructuring (UMBIX) | $6,085 | 40.2% | 0.9% |
Croft Value (CLVFX) | $122 | 31.7% | 1.5% |
Dodge & Cox International Stock (DODFX) | $35,320 | 44.8% | 0.6% |
Fidelity Magellan (FMAGX) | $22,724 | 32.6% | 0.7% |
Matthews China (MCHFX) | $2,030 | 65.6% | 1.2% |
Matthews India (MINDX) | $630 | 77.8% | 1.3% |
Oakmark International (OAKIX) | $4,044 | 49.8% | 1.1% |
Royce Opportunity (RYPNX) | $844 | 49.9% | 1.2% |
T. Rowe Price Growth Stock (PRGFX) | $16,746 | 33.7% | 0.7% |
Yacktman Focused (YAFFX) | $431 | 55.0% | 1.3% |
This article was reported by Rob Wherry for SmartMoney.
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