Leaders of New Bull Market May Be Emerging

Recent performance shows which industries are strongest in what might be a repeat of the 2002 to 2007 stampede.
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It's hard enough to know when a bull market will emerge. It's even more difficult to determine which industries will lead the charge.

The two tables below show whether the funds and groups that led the 2002 to 2007 bull market might pull off a repeat performance.

The table of investment objectives illustrates that a worldwide view proved a winning strategy. Emerging market funds were a slam dunk, as they accounted for 26% of the top 200 performers. Non-U.S. funds made up 34%, and global equity funds -- those with foreign and domestic holdings -- accounted for 3%.

Add the 12% that came from energy and natural resources, and the 10% from precious metals -- both groups have high international exposure -- and close to 85% of the top 200 performers had at least some foreign flavor.

Another table shows the recent performance of mutual funds that rose the most during the bull market. All have been hammered over the past year. But each of the globally focused funds has outperformed the

S&P 500

index over the past three months.

A clue to hidden strength can be seen in the summary of major indexes at the bottom of the table. Gauges representing the pure equity categories were led by the MSCI emerging markets index, off 4.8% during the past three months, significantly better than the 17% decline suffered by the S&P 500.

But while only two of the globally focused bull-market leaders have declined by double-digit percentages over the most recent three months, seven of the U.S. leaders are down 10% or more.

Energy and natural resources dominate the domestic list, with four funds on the domestic leaders' side for the last bull market and one on the globally focused section. While petroleum has more than halved from its 2008 peak, some analysts say it's unlikely to fall further.

That's no guarantee that international diversification will be profitable in a new bull market. But the evidence seems compelling that looking beyond our shores is worthwhile.

A lesson that the tech bubble of the late 1990s and the subsequent crash should have driven home is never to believe that "things are different this time." The next bull market almost certainly will have different leadership than the last. But it probably won't be completely different than the run-up that began in 2002 and ended in late 2007.

Richard Widows is a senior 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.