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Look for Low Drawdowns in Mutual Funds

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NEW YORK ( TheStreet) -- As the stock market climbs the wall of worry, some investors are vowing not to look down. If you're worried about another drop, you should take the opposite approach and consider the stock mutual funds that have had the smallest drawdowns during the bear market.

A "drawdown" is a fund's biggest percentage decline, from its high to its low, in a given period. It reflects how a fund performed in the worst-case scenario. The logic is that if, in the worst of times, these funds fell less than others, they are safer.

During the three years that ended July 31, the Fidelity Select Biotech Portfolio (FBIOX) had the best drawdown, falling 32% between July 29 and Nov. 20, 2008. With heavy weightings of Amgen (AMGN), Gilead Sciences (GILD), Biogen Idec (BIIB), Genzyme (GENZ), and Celgene (CELG), the fund is staging a comeback. The fund has regained more than half of its decline, and looks primed to continue its ascent.

Eight of the 10 "buy"-rated stock funds with the smallest drawdown rates target the health care and biotechnology sectors. Spending on medical care has remained constant despite the weak economy.

The Forester Value Fund (FVALX) had the top drawdown among funds not exclusively focused on health care, declining 32%. While almost 15% of the fund is invested in drug stocks, this A-plus fund also holds companies such as 3M (MMM), Hewlett-Packard (HPQ), AT&T (T) and Microsoft (MSFT).

Bullish Stock Funds with the Smallest Drawdowns
Fund (Ticker) Rating
Total Return 3 Years
Fidelity Select Biotech Port (FBIOX) B+
Franklin Biotechnology Discovery A (FBDIX) A-
BlackRock Health Sci Opp Inv A (SHSAX) A
Forester Value Fd (FVALX) A+
Rydex Series-Biotechnology A (RYBOX) A+
Dreyfus Health Care A (DHCAX) B-
Saratoga Adv Tr-Health & Biotech A (SHPAX) A
Oak Assoc-Live Oak Health Sciences (LOGSX) A
Rydex Series-Consumer Products A (RYPDX) A-
Rydex Series-Health Care A (RYHEX) B-
Source: & Bloomberg

This review excludes market-neutral funds that hedge risk with both long and short positions, as well as funds rated less than B-minus. These funds invest at least 90% of their assets in stocks.

-- Reported by Kevin Baker in Jupiter, Fla.

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Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.

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