Mutual Fund Ratings Pick A-Plus Winner - TheStreet

NEW YORK (TheStreet) -- The Highland Long/Short Equity Fund (HEOAX) - Get Report tops the list of 59 newly rated stock mutual funds and is the sole fund to score an A-plus.

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

Apple

(AAPL) - Get Report

,

Equinix

(EQIX) - Get Report

,

SBA Communications

(SBAC) - Get Report

,

Windstream

(WIN) - Get Report

and

Syniverse Holdings

(SVR)

.

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

(GODAX)

, 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

(TIP) - Get Report

and

iShares Barclays 1-3 T-Bonds

(SHY) - Get Report

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.

TheStreet.com Ratings

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."

For more information, check out an

explanation of our ratings

.

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.