Historically, we've called our annual package of the top-performing stock funds in a variety of categories over a variety of time periods "And the Winners Are . . ." But given the minus signs next to nearly all of the one-year returns and most of the three-year numbers, that mantle didn't sit right. It's pretty hard to call a fund that lost 25% over the past year a winner without bursting into laughter -- or tears.
The awful truth about the 2007-09 bear market is that it left few stock funds or sectors unscathed. The average one-year return for the 11 categories featured in this article ranged from -20% to -32%. Of the 110 funds listed as one-year winners, only 15 were in the black.
Were it not for a rollicking rebound that saw U.S. stocks soar 35% from the market's March 9 low through June 30, with foreign stocks doing even better, the results could have been far worse.
The recent bear market, combined with the 2000-02 setback, has undermined long-term returns. As a result, the average 10-year returns in two categories, large-company growth and large-company blend, are also negative. For stocks to lose money over so long a period is highly unusual.
The good news is that after such a horrendous decade, the odds favor better results in the coming decade. Performance doesn't have to rock. A return to normalcy -- average yearly gains of 10% a year or so for U.S. stocks -- would do just fine. We'd settle for 8%.
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If you want bigger returns, you'll have to take on more risk, and that means investing more abroad, particularly in fast-growing emerging markets. Some might even argue that a nation such as China, with its bulging coffers, is a safer place to invest than a deficit-wracked country such as the U.S.
To see which funds did best in their categories and which we think are most likely to thrive in the more-normal market we anticipate in the coming 10 years, see below and our online rankings, which let you sort by style and type. You also can download the complete rankings.
Large-company growth funds
Stocks in this category held up comparatively well through the bear market. After all, these are the sorts of companies (think providers of pop and pills) that people patronize no matter the state of the economy. But the group has lagged since stocks bottomed on March 9 and investors began to seek riskier assets.Reynolds Blue Chip Growth (RBCGX) hit the top of the charts by piling into cash. Manager Fritz Reynolds' long-term record is spotty, however. Ken Heebner manages CGM Focus (CGMFX) aggressively. That got him into trouble over the past year as his bets on commodities and financials went awry. But when Heebner's good, he's really good. In buying market leaders, Fidelity Contrafund (FCNTX) manager Will Danoff doesn't obsess over the price he pays for a stock. Focus and Contrafund are members of the Kiplinger 25, our list of the best funds around.
Large-company blend funds
This category, which focuses on stocks with a mix of growth and value attributes, is the one that most closely competes with the Standard & Poor's 500 Index ($INX), a key measure of U.S. stock performance. Arguably the top choice in this style is Fairholme Fund (FAIRX), which will almost surely have one of the best long-term records in the business when it celebrates its 10th birthday in December. Including the first half of 2009, the Kiplinger 25 member has beaten the S&P 500 nine times in its 10 years. Manager Bruce Berkowitz looks for stocks that are cheap relative to the free cash flow a company generates, and he'll often hold big cash positions.Also worth considering are the bargain-hunting Longleaf Partners (LLPFX), another member of the Kiplinger 25, and Sequoia Fund (SEQUX).
Large-company value funds
This has not been a good category in which to hide your money. The collapse of financial stocks was particularly brutal to large-company value funds. Nevertheless, industry veteran manager Don Yacktman, joined by son Stephen, posted some impressive results with his two funds, Yacktman (YACKX) and Yacktman Focused (YAFFX), by holding relatively safe stocks, such as Coca-Cola (KO, news, msgs).Amana Trust Income (AMANX), run by Nicholas Kaiser, has also shown impressive consistency over several time periods. Amana's Islamic investing principles helped it avoid minefields in finance and heavily leveraged businesses. Wasatch-1st Source Income Equity (FMIEX) underwent an ownership change last year, but steady manager Ralph Shive remains at the helm. Finally, after an extended dry spell, Kiplinger 25 stalwart Dodge & Cox Stock (DODGX) is looking better this year.
Video on MSN Money
Why one small-cap fund is soaringChao Chen, manager of the TFS Small Cap Fund, explains why his fund is up almost 90% from its March lows.
Small and midsize growth funds
FBR Focus (FBRVX) once again showed why it deserves a place in the Kiplinger 25. While it's technically a midsize-company growth fund, FBR Focus manager Chuck Akre is conscious of the price he pays for stocks. Also, he trades rarely, showing commitment to his picks -- and holding down taxable distributions. Given that the Standard & Poor's Midcap 400 Index ($MID.X) was down 28% in the past year, FBR's 6.5% drop looks pretty good. The fund also sports an impressive long-term record. Ditto for another favorite, Meridian Growth (MERDX), which shows up on the winners lists over one, 10 and 20 years.Longtime manager Rick Aster's fund has beaten the S&P 400 by an average of 3 percentage points a year over the past 10 years, and has done so with less volatility. Computer-driven Bridgeway Ultra-Small Company (BRUSX) is also appealing.
Small and midsize blend funds
Several names from the Royce family, which is known for unearthing undervalued small-company stocks, show up on this list. Not surprisingly, two Royce funds that can sell stocks short to bet on falling prices did relatively well in recent years. But before you get too excited about Royce Select I (RYSFX) and Royce Select II (RSFDX), know that you need to pony up at least $50,000 and that you need to be a "qualified" (that is, well-heeled) investor to gain entry.Royce Low-Priced Stock (RYLPX) is a better choice for most investors. The fund, which buys mostly stocks selling for $25 per share or less, has beaten its benchmark by an average of 7 percentage points per year over the past 10 years. Tilson Dividend (TILDX), co-managed by Kiplinger's columnist Whitney Tilson, has held up by investing in reasonably priced stocks with high dividend yields.
Continued: Small and midsize value funds
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