One Fund, 10 Years, No Annual Losses

If the punishing 2000-02 bear market wasn't enough, the 2008 implosion certainly made it difficult to imagine any equity mutual fund could have survived the past 10 years without a at least one negative annual return.

So it was with minimal expectations that TheStreet.com Ratings team combed its database of open-end equity and hybrid mutual funds to search for such a performer. Astoundingly, we uncovered a single fund that has not suffered an annual loss over the most recent 10 years.

The GMO Alpha Only Fund III (GGHEX) fulfilled its purpose of hedging against losses while successfully investing on the "long" side of the market to become the only equity or hybrid fund to pass the 10-calendar-years-with-no-annual-losses test for the decade ended Dec. 31, 2008.

But before anyone prone to a "pain-resistant" approach to equity investing writes a check to get into GGHEX, be aware that any investor looking to get in will need a bank balance well into the eight digits.

The fund invests primarily in the underlying funds of GMO (Grantham Mayo Van Ottlerloo & Co.) domestic equity international equity funds, or directly in equity securities of the type invested by these funds. It may also invest in the firm's emerging-country debt portfolio or in debt securities of the type invested in by the fund.

It states that is will implement its the strategy with a combination of U.S. and international equities and typically invest in a U.S. equity strategy that will be hedged using exchange traded S&P 500 futures contracts.

Unlike most "market neutral" hedge fund lookalikes that have opted to travel the open-end mutual fund route, its short-side positions have been selected and proportioned in such a way as to produce annual gains for each of the past 10 calendar years.

Skillful use of derivatives has helped the fund on its steady upward course.

As might be expected from a long-short fund, GGHEX's gains during the 2003-06 bull years were relatively modest. But they followed double-digit annual advances during the painful 2000-02 bear market. As can be seen in the accompanying table, the fund's hedging bordered on brilliance in the year just ended, rewarding holders with a positive return of 12.09% for calendar 2008.

10 YEARS OF POSITIVE RETURNS: FOR BIG PLAYERS ONLY NAME GMO Alpha Only Fund III TICKER GGHEX MINIMUM INITIAL INVESTMENT $10,000,000 TOTAL NET ASSETS (MIL.) $272.4 TOTAL EXPENSE RATIO (%) 0.81 TheStreet.com Ratings REWARD GRADE A+ TheStreet.com Ratings RISK GRADE B+ TheStreet.com Ratings OVERALL GRADE A+ CALENDAR YEAR TOTAL RETURNS (%) CALENDAR 2008 12.09 CALENDAR 2007 7.60 CALENDAR 2006 3.34 CALENDAR 2005 4.95 CALENDAR 2004 2.64 CALENDAR 2003 2.71 CALENDAR 2002 11.61 CALENDAR 2001 15.13 CALENDAR 2000 19.38 CALENDAR 1999 1.64 Source: TheStreet.com Ratings & Bloomberg (Data as of 12/31/2008) For more information, check out an explanation of our ratings.