As the mutual-fund world awaits year-end results, many people naturally are watching to see which managers will continue their streaks of consecutive years beating the S&P 500.
But that's not the only type of streak people are watching -- a more effective tool, many experts say, is to compare each fund to its own benchmark index.
The theory goes that different asset classes can enjoy eras of outperformance, leading to distortions. The S&P 500 is a U.S-centric large-cap company index, so when small stocks, foreign stocks or sectors such as energy or financials perform particularly well, there are a lot of those types of funds that beat the S&P 500.
When funds are compared with their own benchmarks -- a small-cap growth-stock fund would, in this case, be measured against a small-cap growth-stock index -- it would be easier to measure the true outperformers in a given fund class.
Last year, 12 funds could boast eight-year streaks -- the longest current active length, going back to 1999 --beating their benchmark indexes; six large-blend funds, five large-growth funds, and one small-growth fund. This year, eight of those 12 funds were ahead of their comparable indexes for the year as of Nov. 30, putting them on track for nine consecutive years of outperformance.
Here's a sneak peek at which funds look likely to retain their membership in this exclusive club, thanks to Morningstar's Mark Komissarouk, who came up with these results as of Nov. 30 using Morningstar data. Of course, there could be changes before the end of the year, particularly given the high volatility of the past few months.
In the large blend category, five funds are still going strong. Two,
Russell LifePoints Equity Growth Strategy and
T. Rowe Price Spectrum Growth, are funds that invest in other mutual funds.
Three others that invest directly in stocks --
American Funds Fundamental Investors,
Hartford Capital Appreciation HLS and
Target Growth Allocation -- also seem, at least for now, to be in position to keep their streaks alive.
Fundamental Investors' top holdings include
; Hartford Capital Appreciation's include
Companhia Vale Do Rio Doce
; Target Growth Allocation's include
However, it looks as though
Cambiar Opportunity will finish under the Russell 1000 benchmark this year.
The large growth category gets a little interesting. Only two funds from the five remaining are in position to stay up:
Amana Growth, a fund that complies with the Islamic principles of Sharia; and
American Funds New Economy.
Amana Growth's top holdings include
; New Economy's include Google and
Three funds from that group --
American Funds Growth Fund of America (a huge fund with more than $200 billion in assets),
Fidelity Capital Appreciation and
Vanguard Morgan Growth -- look to be finishing under the Russell 1000 Growth index this year.
But there's a surprise in the category, too:
Natixis U.S. Diversified shows up -- but it wasn't there last year.
How did that happen? The fund's investment portfolio changed enough that Morningstar reclassified the fund from "mid-cap growth" to "large-cap growth." It hadn't had the streak beating the Russell Midcap Growth index, but had beaten the Russell 1000 Growth metric.
Natixis U.S. Diversified's top holdings include
Rounding out the list,
Turner Emerging Growth is still hanging in there. The lone non-large-cap fund with a benchmark-beating streak going back to 1999, it actually fits into the small growth category.
The fund's top holdings include
No value-oriented funds show up on the streaks list until it gets down to a mere three-year streak, which itself is owned by only one value fund:
Eaton Vance Dividend Builder. That large-cap value fund has beaten the Russell 1000 Value index since 2004.
Dividend Builder's top holdings include