During a stock-market crash and a deep recession, Highland Long/Short rose 18% last year and an average of 4.9% over three years. The ratings are based on three years of risk-and-return results as of Dec. 31.
The top-five holdings at year-end were
Company co-founder and President James Dondero, and portfolio manager Jonathan Lamensdorf selected the stocks based on free cash flow, regular dividends, potential earnings growth and positive industry dynamics. The excellent initial rating resulted from success in achieving their objective of above-average total returns with less volatility as measured by a small drawdown last year of just minus 5.3% compared with minus 28.1% for the
S&P 500 Index
Eight other equity funds were awarded "buy"-level initial ratings of B-minus or better. The
Aberdeen Optimal Allocations Defensive Fund
, starting out with a grade of A, grew 16% in one year and averaged 3.5% over three years. Just over half of the fund-of-fund's assets are pegged to the performance of the fixed-income market, with heavy positions in
iShares Barclays TIPS Bond Fund
iShares Barclays 1-3 T-Bonds
to limit risk.
Eighteen funds with an average balance of risk and return start off "hold" ratings. Many combined good performances in 2009 with weaker three-year records or higher volatility.
condenses performance and risk data into a composite opinion of each fund's risk-adjusted performance. This allows for the unbiased identification of funds that have historically done well and those that have underperformed. While there's no guarantee of future performance, the investment ratings provide a solid framework for making informed, timely investment decisions.
Funds rated A or B are considered "buy." Funds at the C level are "hold," while underperformers at the D and E levels rank as "sell."
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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.