As the stock market marched to record highs in May, not all sectors had the octane to keep up. Internet and energy funds flourished, but precious-metals funds were tarnished and real estate turned out to be a "subprime" location for investment.
After excluding the inverse funds that short specific sectors, Internet and telecommunications funds outperformed the other major sectors in May. The group of open-end funds, closed-end funds and ETFs that follow this sector averaged a whopping total return of 6.60% from April 30 to May 31.
The best-performing funds of this group include
ProFunds Mobile Telecommunications UltraSector ProFund (WCPIX), up 17.46%,
ProFunds Telecommunications UltraSector ProFund (TCPIX), up 14.07%,
B2B Internet HOLDRs Trust
, up 12.81%,
Fidelity Select Wireless Portfolio (FWRLX), up 10.00%, and
ProFunds Internet UltraSector ProFund (INPIX), up 9.55%.
The three Internet and telecom funds that our model ranked the highest for risk-adjusted performance are the A-plus-rated
GAMCO Global Telecom AAA (GABTX),
Fidelity Select Telecommunications (FSTCX), with an A rating, and the
DWS Communication Fund (TISHX), which earns an A-minus.
In second place, the energy and natural resource sector hit pay dirt with an average total return of 5.99% in May. Top performers include
Ultra Oil & Gas ProShares
, up 14.11%,
Profunds Oil Equiptment Distribution & Services UltraSector ProFund (OEPIX), up 10.99%,
ProFunds Oil & Gas UltraSector ProFund (ENPIX), up 10.37%,
PowerShares Dynamic Oil & Gas Services Portfolio
, up 10.10%, and
ProFunds Basic Materials UltraSector ProFund (BMPIX), up 9.94%.
The five energy and natural resource funds that our model awarded an A rating to are
BlackRock Global Energy & Resources
First Trust Energy Income & Growth
Energy Select Sector SPDR
iShares S&P Global Energy
iShares Dow Jones U.S. Energy
After combining the 45 real estate funds that fell in May with the five that were flat and the 68 that rose, the group average advanced just 0.38%. The funds imparting the most negative impact on this average include
Dividend Capital Realty Income Allocation Fund
, down 2.66%,
Cohen & Steers Advantage Income Realty Fund Inc
, down 3.37%,
ING Clarion Real Estate Income Fund
, down 3.59%,
Cohen & Steers Premium Income Realty Fund Inc
, down 4.10%, and
RMR Asia Pacific Real Estate Fund
(RAP) down 10.11%.
Just because a broad sector underperformed for a month is no reason to exclude it from a well-diversified portfolio. If you are looking for a real estate fund, our model still likes
ING Global Real Estate A (IGLAX),
Universal Inst US Real Estate I (UUSRX),
MSIF Inc. Intl Real Estate B (IERBX),
REMS Real Estate Value Opp Fd (HLRRX),
SEI Instl Managed Tr-Real Est A (SETAX),
Third Avenue Real Estate Value (TAREX),
TA IDEX Clarion Glb Real Estate A (ICRAX), and
JPMorgan Realty Income Fund Cl C (URTCX). All these funds received our top rating of A-plus.
Also with a lackluster performance in May, the average precious-metals fund rose a mere 0.68%. Of the 30 funds we track, 15 funds, largely focused on gold, fell, while 15, more diversified metals, minerals and mining funds, gained value.
The five gold funds that melted down the most in May are
Streettracks Gold Trust
, down 2.31%,
iShares COMEX Gold Trust
, down 2.40%,
PowerShares DB Gold Fund
, down 2.61%,
First Eagle Gold Fund (SGGDX), down 2.62%, and
Gabelli Global Gold Natural Resources & Income Trust
, down 2.87%.
The rating model takes a much longer view than just one month but agrees on the generally negative outlook for precious-metals funds. Three of the funds from this sector remain highly rated by diversifying away from pure gold. They are the B-plus-rated
Gabelli Global Gold Nat Res & Income (GGN), B-rated
Fidelity Adv Materials Fund B (FMFBX), and B-rated
Vanguard Materials Index Fd Adm Shs (VMIAX).
Even though the utility sector performed in the middle of the pack for May, our model ranked it as the No. 1 sector because of lower volatility at higher levels of total return. Some 17 unique funds earned our highest rating of A-plus, with
Cohen & Steers Utility (CSUAX) topping the utility fund list.
Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, 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.