Funds With the Best Returns Relative to Risk

The rise in volatility in recent months is prompting concerns about the health of the stock market. It's certainly something you should take into consideration in selecting a mutual fund.

But while the amplitude of stock price movements has been on the upswing, it's arguably a return to historical norms from what has been an abnormally low level of market volatility.

A study of 1,468 open-end mutual funds in TheStreet.com Ratings' database indicates that, even with the recent uptrend in volatility, the medium-term variability of returns remains significantly below the level of three years ago. Only diversified U.S. stock funds were included in the study. Funds that focus on stocks in a specific market sector and funds that track a stock index were excluded.

The measure of volatility used in the study was the annualized standard deviation of total returns for the trailing 36 months. This is basically defined as the annualized value of the up and down bounds within which approximately 68% of the month-to-month fluctuations in a fund's monthly returns deviate from its annualized rate-of-return trend. ...