Funds That Outperform When the Market Is Hot

In sports parlance, the 2006 U.S. stock market would be described as a "second-half game." The stock market started the year with generally promising performance, then encountered an unsettling downdraft in the spring. But by midyear it was back on its feet and headed toward a strong finish.

But there were also laggards that couldn't put together competitive performances even with the benefit of a strong stock market tailwind.

In an effort to identify the mutual funds that tend to have the wind at their backs during periods of market strength, TheStreet.com Ratings compiled a list of leaders and laggards during 2006's second half. The list excludes leveraged and "inverse" funds as well as those with minimum initial investments of more than $10,000. To attain an even comparison of diversified equity funds, specific sector funds were also excluded.

Surprisingly, the leaders list is not dominated by volatile growth funds. Six of the top performers on the list are asset-allocation funds that combine stocks and bonds for what are intended to be steady but conservative returns. Five of them are Banc of America retirement series funds, a category that would be considered especially conservative. Seven of the leaders incorporate the word "value" in their names -- not a term that conjures up images of super-exponential growth. And three funds are of the "growth and income" classification.

Of 10 leaders with sufficient history to qualify for TheStreet.com Ratings grades, seven are in the A and B ranges that qualify as buy recommendations.

Generally speaking, the leaders tended to spread out their performance with decent gains in both the third and fourth quarters of the year, as can be derived by comparing second-quarter results with fourth-quarter postings.

This was frequently not the case with the laggards. Five of the laggards were on the list despite positive fourth quarters. However, seven of the bottom-dwellers suffered the biggest portions of their losses in the year's final quarter. Clearly, consistency -- as well as lack of overall results -- was not a characteristic of the laggards group.

All 15 of the laggards with qualifying history for TheStreet.com Ratings grades received marks in the D and E ranges, which equate with sell recommendations.

2006 Second-Half Action: Leaders and Laggards
Fund and Ticker	Objective	1-Year Total Return (%)	6-Month Total Return (%)	3-Month Total Return (%)	TSC Ratings Grade
Leaders
Commerce Value Fund Inst - (CFVLX)	Growth & Income	30.84	24.27	15.89	A+
Federated Strategic Value A - (SVAAX)	Equity Income	29.74	19.46	8.71	U
Lazard U.S. Eqty Value Prt Open - (LEVOX)	Growth & Income	25.94	19.37	9.92	U
Tilson Focus Fd - (TILFX)	Growth	25.68	19.29	10.69	U
TA IDEX BlackRock Large Cap Value*	Growth	25.62	18.17	14.87	U
Janus Contrarian Fund - (JSVAX)	Growth	24.58	18.33	12.27	B-
Old Mutual Focused Fd A - (OAFCX)	Growth	22.53	18.42	8.48	A-
Longleaf Partners Small-Cap Fund - (LLSCX)	Small Cap	22.33	18.47	9.27	B
Old Mutual Large Cap Fd A - (OLLLX)	Growth	22.01	18.23	7.72	B
Commerce Asset Allocation Inst - (CAAIX)	Asset Allocation	20.66	18.69	13.37	B-
Laggards
Ameritor Investment - (AIVTX)	Growth	-85.71	-66.67	-0.01	E-
MassMutual Premier Small Co Opp A - (DLBMX)	Small Cap	-26.39	-28.14	-26.80	E-
American Heritage Growth Fund - (AHEGX)	Growth	-25.00	-25.00	0	U
American Heritage Fund - (AHERX)	Aggressive Growth	-12.50	-12.50	-12.50	E-
Rice Hall James Small/Mid Cap Port - (RHJMX)	Small Cap	-11.32	-14.95	-14.37	E-
Ameritor Security Trust 1 - (ASTRX)	Aggressive Growth	-10.00	-12.20	0	E-
Gabelli Comstock Partners Strat A - (CPFAX)	Aggressive Growth	-9.04	-4.95	-2.28	E-
Gabelli Comstck Partners Cap Val A - (DRCVX)	Aggressive Growth	-7.90	-6.77	-3.61	E-
PIMCO StocksPLUS Tr Sh Strat A - (PSSAX)	Growth & Income	-6.66	-5.24	-4.57	D
STAAR Inv Trust Sm Comp Stock Fund*	Small Cap	-6.60	-12.24	-11.20	E
*Ticker not available
Source: TheStreet.com Ratings. Data as of 12/31/2006