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24 Bull-Market Funds Still Alive and Kicking

Richard Widows

No one really knows at this point whether the bear market that began last October is really over. While its bite hasn't been particularly deep so far, at least by historical bear-market standards, the cuts have been broad. To date, less than one equity mutual fund out of every 50 has survived the cascade.

TheStreet.com Ratings searched its database of equity mutual funds that had participated in the 2002-07 bull market and have remained intact, thus far, during the downturn. Of 2,913 funds with sufficient history, only 36 --1.17% of the total -- have so far resisted the October-through-July spill.

The increasingly popular "inverse" funds that move counter to the direction of stock prices didn't make the list because their values eroded during the bull market that ended in October.

Since an annualized return of at least 6% would be considered reasonable for the brisk 2003-07 market, 12 funds with bull market returns of less than that magnitude were discarded. The remaining 24 "all weather" funds appear in the accompanying table.

A broad definition of "equity funds" was used in screening candidates for the list; it includes stock-bond "hybrid" vehicles as well as commodity plays. Yet, surprisingly, no "wimpy" defensive funds survived the cut. The closest to what might be taken for a conservative investment would be the single growth and income fund in the group, the true-blue sounding Heartland Value Plus Fund(HRVIX Quote). Yet its major holdings, with include St. Mary Land & Exploration Co.(SM Quote), Olin Corp.(OLN Quote) and Datascope Corp.(DSCP Quote), would not seem like pain-avoidance selections.

The roster includes two funds designated as asset allocation funds. While such funds traditionally combine equities and fixed-income holdings, the Federated Market Opportunity Fund(F,AAX Quote) and the Permanent Portfolio Fund(PRPFX Quote) each are loaded with hard assets such as precious metals investments, energy and even currencies.

Surprisingly, considering all the recent investor fixation with emerging markets and other foreign plays, the bull-bear winners list is devoid of any funds that pitch themselves as strictly international investments. With holdings of currencies such as Swiss francs to hedge against erosion in the U.S. dollar, the Permanent Portfolio Fund comes as close as any on the list to being international.

Although the BlackRock Global Resources Fund(SSGRX Quote) sports "global" in its name, its portfolio looks typical of most domestic energy funds. Among its largest holdings are Massey Energy Co.(MEE Quote), Consol Energy Inc.(CNX Quote), Arch Coal Co.(ACI Quote) and Peabody Energy Corp.(BTU Quote).

The two commodities funds in the table, Oppenheimer Commodity Strategy Total Return(QRAAX Quote) and PIPMCO Commodity Real Return Strategy(PCRAX Quote), haven't just survived the bear market, they have prospered during the recent spell of misery. Each vaulted more than 18% during the October-July bloodbath. They both entered the downturn with five-year annualized growth rates of more than 17% coming into the bear market and now have elevated them to annual rates of more than 18% for the five years ended July 31.

The only other fund on the table with a current five-year growth rate exceeding the comparable pre-bear-market figure is the Fidelity Select Energy Services Fund(FSESX Quote). It major holdings include energy mainstays Schlumberger Ltd.(SLB Quote), Halliburton Co.(HAL Quote) and National Oilwell Varco Inc.(NOV Quote).

The aging Baby Boom generation provides the seven health/biotechnology funds on the list with a great demographic basis for continued growth. But memories of the collapse of the financial sector should serve as a reminder about the risks of putting too many eggs in one basket.

Similarly, the six energy/natural resources funds in the all-weather group led the market during the steady elevation of petroleum and natural gas. As crude oil approached $150 a barrel while the stock market was sliding in recent months, the energy group continued to enjoy gains. But the recent setback in the price of crude serves as a warning that even the energy group could fall out of orbit.

In the same vein, the two commodities funds and the pair of store-of-value-focused asset allocation vehicles in the table could easily fall prey to changes in fashion. A good example is gold, which topped $1,000 an ounce earlier this year has in recent sessions been heading toward $800.

The true bear fighters on the list are the seven diversified equity funds that held up during the first nine months of the market slide. A relatively conservative growth and income fund such as the Heartland Value Plus Fund doesn't seem out of place on the bear-resistant fund list. But more surprising to find on the roster is the Hussman Strategic Growth Fund(HSGFX Quote), which crawled ahead at a subdued annual rate of 7.95% per year during the bull market, but then bucked the headwinds for a gain of 3.40% during the October-through-July market downdraft.

Another fund classified in the domestic growth category on the list is the Fidelity Select Chemicals Portfolio(FSCHX Quote). Concentrating in industrial chemical firms, it runs the risk of overspecialization, despite its resistance to the bear market.

But arguably the most impressive members of the funds-for-all-seasons list are the four small capitalization funds--three of whom are managed by the Eaton Vance group. Small-cap funds traditionally have shown little immunity to bear markets.

So the quartet of small-cap funds deserve special praise for their success in bucking the headwinds. That's assuming, of course, that the bear market is now history or, if not, that they can keep it up.