TheStreet.com Ratings initiated coverage of 18 open-end mutual funds that accrued a track record of three years of risk and performance data by the end of November.
Only one of the funds that opened for business in November 2005 received our top rating level of "excellent." The
Highbridge Statistical Market Neutral Fund
is also the only fund scoring both a positive one-year return, at 8.3%, and a three-year annualized return, at 4.8%.
TheStreet.com Ratings' risk-adjusted return ranking model for open-end stock mutual funds places Highbridge in the top category at A+. Notable holdings include
. With 1,046 U.S. stocks in the portfolio, no individual stock holding makes up more than one-half of 1% of fund assets and no sector is allocated more than a 6% concentration.
Two funds earned initial ratings of B+. The first,
FBR Pegasus Fund
averaged a loss of just 3.64% over the past three years. The fund's largest stock holdings are
Bank of America
The second newly rated fund at the B+ level is
RidgeWorth Life Vision Target Date 2015 Fund
. This fund of funds has an inception date of January 2007, but is a newer share class of an institutional fund launched in October 2005. The three top RidgeWorth funds held are the RidgeWorth Total Return Bond Fund, at 29.7%, Large Cap Value Equity Fund, at 13.4%, and Large Cap Core Equity Fund, at 11.5%. The portfolio is scheduled to get more and more conservative as the target date is approached. By 2017, RidgeWorth expects to combine this fund into the RidgeWorth Life Vision Conservative Fund.
At the bottom of the list starting out with initial ratings at E- are the
Direxion Emerging Markets Bull 2X Fund
Direxion Emerging Markets Bear 2X Fund
. The former is 200% leveraged to the MSCI Emerging Markets Index while the latter is 200% inversely leveraged to the same index.
How can both the bullish and bearish funds simultaneously do so poorly?
The underlying emerging markets index had good performance in 2006 and great performance in 2007. This year it crashed below 2006 levels before bouncing back a bit in the fourth quarter.
Two years of index gains obliterated the short fund. Plus, the tiny bounce-back wiped out most of the bear fund's winnings from the market crash. The bullish fund's luck ran out in November 2007. Over the past year, the bull fund gave back 87.5% of its net asset value. This allows the bull and bear fund to have similar three-year annualized losses of 31.8% and 39.2%, respectively, to earn ratings of E-.
TheStreet.com Ratings condenses the available fund performance and risk data into a single composite opinion of each fund's risk-adjusted performance. This allows the unbiased identification of those funds that have historically done well and those that have underperformed the market. While there is no guarantee of future performance, these investment ratings provide a solid framework for making informed, timely investment decisions.
The funds listed below have either reached their three-year anniversary or are additional share classes of existing funds for which the fund companies have submitted three years of pro-forma results.
Funds rated A or B are considered "Buy" rated based on a track record of higher than average risk-adjusted performance. Funds at the C level are rated as "Hold," while underperformers at the D and E levels our model ranks 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.