With the stock market lingering in a stasis between "correction" and "bear market," mutual fund investors are likely to be looking around for vehicles with equity exposure for participation in case the bulls prevail, while at the same time offering some resistance to the southerly course that prices have taken in recent months.
Funds that moved ahead at an annual pace of at least 6% during the five-year period ended in October -- which on a month-end-basis corresponded with the 2002-07 bull market -- appear in an accompanying table. Of particular interest, however, is that each of the equity and hybrid funds on the list has managed to maintain upward movements despite the severe downdrafts of the past three months.
Ten of the 14 "correction resistors" in the table rewarded investors with double-digit annual returns during the five-year bull market. All 10 achieved returns surpassing the annualized 14.35% total annual reinvested return of the
for the period.
In fact, the average annualized return for all 14 funds in the group was seven percentage points higher than that of the S&P.
Six of these funds that are of the asset-allocation variety have maintained their positive returns by preserving favorable balances of equities and other vehicles -- primarily fixed-income investments. While skillful mixing of various types of investments can provide these funds with buffers against shocks in the stock market, holdings of fixed-income securities usually dampen the overall gains of such funds during periods of rapidly advancing stock prices.
Five funds on the list specialize in precious metals, which have been steadily appreciating in value in recent years. Gold has continued to move higher during the stock market setbacks of recent months.
But while some precious metals analysts assert that gold still has a very long way to go, thanks to demand from newly prosperous Asians as well as non-Asians worried about inflation, the precious metals funds lack sector diversification. While it has been profitable in recent years, heavy portfolio concentration in this sector amounts to "putting all your eggs in one basket."
One basket in which few would currently expect to find a fresh egg would be financial services. Surprisingly, a fund specializing in that sector found its way onto the list. By eschewing the big guns of finance that have been blindsided by the subprime implosion, the
FBR Small Cap Financial Fund
has remained in positive territory over the past three months.
FBRSX's largest portfolio holdings are
Hudson City Bancorp
That leaves two truly diversified equity-focused funds on the list of those with respectable returns during the bull market and the more recent three-month downturn.
API Trust-Value C
rewarded investors at an annual rate of 21.35% during the five-year bull market period through Oct. 31, 2007. For the most recent three months, it held onto a respectable total return of 3.72%. Its largest holdings are the
SPDR S&P Emerging Asia-Pacific ETF
Deere & Co.
While YCVTX's total annual expense ratio is a mainstream 1.51%, it allows new investors in for a minimum initial commitment of only $1,000. The other diversified equity-focused fund on the list, the
, lets its investors off relatively easy with a total annual expense ratio of only 0.70%. But the entry cost is somewhat steep; a minimum initial investment of $25,000.
The Clipper Fund concentrates on just a handful of stocks, recently just a hair over 20. But its choices have helped boost its total reinvested return for the three-month period ended Jan. 31 to 3.24%, far better than the 10.55% loss suffered by the S&P 500 total return index.
CFIMX's top portfolio holdings are
American International Group
Richard Widows is a financial analyst for TheStreet.com Ratings. Prior to joining TheStreet.com, Widows was senior product manager for quantitative analytics at Thomson Financial. After receiving an M.B.A. from Santa Clara University in California, his career included development of investment information systems at data firms, including the Lipper division of Reuters. His international experience includes assignments in the U.K. and East Asia.