These Rebound Funds Could Add Bounce to Your Portfolio
01/24/08 - 04:24 PM EST
Kevin Baker
Back in December 2006, I conceived and initiated a novel experiment in mutual fund investing. My "mutts of the funds" strategy extrapolated that the Dogs of the Dow Theory might work on the macro scale.
The contrarian hypothesis, at the individual stock level, favors picking good companies having a bad year. I tested the concept for mutual funds by selecting funds with positive 2005 returns that were well on their way to losing money in 2006. So, how did the "mutts" do last year? For 2007, the 18 open-end stock mutual funds designated as mutts averaged 11.62%. By way of comparison, the Dow Jones Industrial Average returned 8.88%, the S&P 500 returned 5.49%, and the Nasdaq Composite returned 10.66% for the same period. As you can see in the table below, 13 of the 18 mutts outperformed all these benchmarks. Winning best of show at the Baker Kennel Club, the (TEQAX Quote - Cramer on TEQAX - Stock Picks)Touchstone Strategic Trust -- Large-Cap Growth Fund barked the loudest, gaining 26.42%. Fund holdings having stellar 2007 returns include 158.80% in Potash(POT Quote - Cramer on POT - Stock Picks), 133.48% in Apple(AAPL Quote - Cramer on AAPL - Stock Picks), 126.63% in Research In Motion(RIMM Quote - Cramer on RIMM - Stock Picks), 140.14% in National Oilwell Varco(NOV Quote - Cramer on NOV - Stock Picks), 110.56% in Southern Copper(PCU Quote - Cramer on PCU - Stock Picks) and a whopping 250.80% in Sunpower Corp.(SPWR Quote - Cramer on SPWR - Stock Picks). Regardless of the apparent victory of the 2007 mutts over the market, it is far too early to declare the strategy a success. Any scientist will tell you that the results of an experiment must be able to be duplicated to confirm the outcome. There is no guarantee of the mutts of the funds strategy paying off in 2008. The major U.S. stock market averages are hovering between the negative 10% correction level and the negative 20% crash level. If we do have a recession in 2008, all bets are off, and the bear may rule Wall Street. On the other hand, maybe Thursday's apparent compromise between Treasury Secretary Hank Paulson and the leadership of the U.S. House of Representatives on economic stimulus can help turn the 2008 mutts around. The package, including child tax credits, tax rebates and direct business incentives, is designed to be timely, targeted and temporary. The package may change in the Senate. But for now, Secretary Paulson expects the IRS to mail out about 116 million checks of up to $600 for individuals making $75,000 or less and $1200 for couples making no more than $150,000. Americans not making enough to owe taxes would get $300. On top of this would be an additional $300 payment per child. Hopefully this will be seen as enough.| 2007 Mutts Outperform the Market | ||||||
| Fund | Ticker | Total Return 2007 | ||||
| Touchstone Strategic Trust - Large Cap Growth Fund | TEQAX | 26.42% | ||||
| Natixis Loomis Sayles Growth Fund | LSGRX | 22.43% | ||||
| American Century Ultra Fund | TWCUX | 21.83% | ||||
| American Century VP Ultra Fund | AVPUX | 21.02% | ||||
| Touchstone Sands Capital Select Growth Fund | PTSGX | 18.53% | ||||
| MassMutual Select Aggressive Growth Fund | MGRSX | 18.21% | ||||
| SunAmerica Style Select - Focused Technology Portfolio | STNAX | 17.03% | ||||
| Fidelity Select Medical Delivery Portfolio | FSHCX | 16.86% | ||||
| Kopp Emerging Growth Fund | KOPPX | 16.45% | ||||
| Oak Associates Funds - Pin Oak Aggressive Stock Fund | POGSX | 15.02% | ||||
| TCW Select Equities Fund | TGCEX | 13.71% | ||||
| American Century Life Sciences Fund | ALSIX | 12.55% | ||||
| Aston Veredus Aggressive Growth Fund | AVEIX | 12.46% | ||||
| Rydex Series - Biotechnology Fund | RYOAX | 5.25% | ||||
| AXA Enterprise Equity Fund | ENEBX | 4.00% | ||||
| ProFunds Biotechnology UltraSector ProFund | BIPIX | -4.86% | ||||
| Bridgeway Micro-Cap Limited Fund | BRMCX | -4.97% | ||||
| Alpine US Real Estate Equity Fund | EUEYX | -22.84% | ||||
| Source: Bloomberg | ||||||
| 2008 Mutts Stock Mutual Funds Down 12% or more in 2007 after 12%+ Gains in 2006 | ||||
| Fund | Ticker | Rating | Total Return 2007 | Total Return 2006 |
| Cohen & Steers Realty Shares Inc | CSRSX | E- | -19.19% | 37.14% |
| DWS Small Cap Value Fund | SCSUX | E- | -18.18% | 19.62% |
| Wells S&P REIT Index Fund | WDJAX | U | -17.71% | 34.12% |
| MainStay Small Cap Opportunity Fund | MOPIX | E- | -17.09% | 13.08% |
| Schneider Small Cap Value Fund | SCMVX | U | -17.08% | 21.08% |
| Hotchkis and Wiley Mid-Cap Value Fund | HWMIX | E | -16.96% | 16.58% |
| RiverSource Real Estate Fund | ARLAX | E+ | -16.61% | 35.29% |
| Vanguard REIT Index Fund | VGSIX | E | -16.46% | 35.07% |
| American Century Real Estate Fund | REACX | E- | -15.79% | 34.69% |
| ING Large Cap Value Fund | IVLIX | D- | -15.51% | 29.51% |
| Goldman Sachs Structured Small Cap Equity Fund | GCSAX | E+ | -15.42% | 12.53% |
| HighMark Small Cap Value Fund | HMSCX | E- | -14.56% | 16.35% |
| JP Morgan Realty Income Fund | URTLX | E | -14.51% | 34.72% |
| Oakmark Select Fund | OAKLX | E | -14.04% | 13.60% |
| Legg Mason US Small-Capitalization Value Trust | LMSVX | E- | -14.00% | 14.59% |
| Wells Fargo Advantage Small Company Value Fund | SCVAX | E | -13.99% | 12.96% |
| Burnham Financial Services Fund | BURKX | E | -13.96% | 17.02% |
| Allegiant Multi-Factor Small Cap Value Fund | AMRIX | E- | -13.27% | 13.29% |
| Putnam Small Cap Value Fund | PSLAX | E- | -13.08% | 17.30% |
| Lotsoff Capital Management Micro Cap Fund | LCMMX | D- | -13.07% | 13.75% |
| Legg Mason Partners All Cap Growth and Value Fund | SPBLX | D- | -12.77% | 12.77% |
| Sterling Capital Small Cap Value Fund | SPSCX | E- | -12.50% | 20.45% |
| Old Mutual Barrow Hanley Value Fund | OAFOX | E- | -12.34% | 14.09% |
| Source: Bloomberg | ||||
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