Stock Funds That May Lead Recovery

Given the suddenness and depth of turbulence that has jarred the stock market, it is difficult to predict a rebound. But following periods of turmoil, new and unexpected sectors often pop up to lead an incipient recovery.

One clue is to look at industries that exhibited strength just prior to the carnage.

The accompanying table shows some interesting hints of groupings that might light the way when the market finally turns around. Whereas "large cap" and "international" had been the mantra of market pundits in recent years, groups representing the antithesis of those trends showed surprising strength before the recent implosion.

The long-overlooked small-cap group led stock mutual fund investment objectives in August, with an average gain of 2.5%, followed by tech/telecoms, with an advance of 1.6%, and underappreciated mid-caps, which rose 1.3%.

Rounding out the top five were the precursors of caution by the market. The equity income division gained 1.1% on average during the month, while the slightly more aggressive growth and income category edged 0.95% higher.

With a rise of 17.6% for the month, the Harbor SMID Value Fund(HISMX) drove the small-cap group, although it remains off 14.1% for the year. The top tech/telecom offering was the T. Rowe Price Developing Technology Fund(PRDYX), up 6%, but down 5.5% year to date.

With the mid-cap group, the top fund was the Apex Mid-Cap Growth Fund(BMCGX), which gained 9.8%. It is also up that much for the year.

The CM Advisers Fund(CMAFX) was tops for the equity income group but remains down by 7.1% for the year to date. Its major portfolio holdings include Microsoft(MSFT), Walgreen(WAG), Wal-Mart(WMT), 3M(MMM) and Wells Fargo(WFC).

Also focusing on reasonably stable investments likely to maintain dividends is the top growth and income fund, Yacktman Focused Fund(YAFFX), which gained 5.9% in August and remains down only 4.8% for the year's first eight months. In addition to Wal-Mart and Microsoft, its largest holdings include Coca-Cola(KO), PepsiCo (PEP) and Procter & Gamble(PG).

STOCK FUND GROUPS SHOWING MOST RECENT STRENGTH
STOCK FUND GROUPING	AUG. AVG. PERF. (%)	BEST FUND (NAME, TICKER & TheStreet.com RATINGS GRADE	FUND'S AUG. RET'N (%)	FUND'S YR.-TO-DATE RET'N (%)	FUND'S MIN. INIT. INVEST.
Small Cap	2.49	Harbor SMID Value Fd Inv (HISMX) U	17.62	-14.08	$2,500
Tech/Communications	1.62	T. Rowe Price Developing Tech (PRDTX) D *	5.98	-5.53	$2,500
Mid Cap	1.33	Apex Mid-Cap Growth Fund (BMCGX) D	9.77	9.77	$1,000
Equity Income	1.09	CM Advisers Fund (CMAFX) D-	4.46	-7.13	$100,000
Growth & Income	0.95	Yacktman Focused Fund (YAFFX) D+	5.79	-4.79	$2,500
* Closed to new investors. Data as of 8/31/2008. Source: TheStreet.com Ratings. For an explanation of our ratings, click here.

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