The best rated open-end stock mutual funds in May each found their own method for bucking the downward trend of the overall stock market. Below are the top 10 funds that beat all other stock funds we rate without completely abandoning the stock market.
The best rated open-end stock mutual fund this month is the
rated A+ combining good returns with low volatility. This fund has accumulated nearly $2.9 billion in assets by sticking with its stated strategy for the last quarter century.
The Permanent Portfolio attempts to preserve and increase shareholders' long-term purchasing power by diversifying among six categories: gold bullion, silver bullion, Swiss franc denominated securities, inflation sensitive real estate & natural resource stocks, aggressive growth stocks, and U.S. government securities. In the year ending May 31, gold rose 34.22% while silver polished up returns of 25.64%.
Over the same period, Swiss franc investments appreciated 17.57% against the U.S. dollar before including the interest paid by the Swiss bonds.
The best stock holdings include
The second highest ranked fund is the
TFS Market Neutral Fund
, also rated A+. The fund is designed to have a low correlation to the U.S. stock market while being less volatile as well. To achieve this goal, a mixture of long and short equity positions, options & futures contracts, and other equity derivatives are utilized.
Mission accomplished! The TFS Market Neutral Fund is uncorrelated to the S&P 500 with an average correlation of just 0.19 from inception through June 30.
Correlation comparison readings vary from 1, for securities that move exactly the way, to 0 for no correlation, to negative 1, for pairs that move in opposite directions. The fund's low beta of 0.10 and standard deviation of 7.50% show success in reducing systemic risk and volatility. With our risk-adjusted return rankings, combining good returns with lower risk is the ticket to high ratings.
With the U.S. economy struggling, this fund has a negative net exposure to consumer cyclical and consumer non-cyclical sectors having shorted more stocks in those sectors than were purchased as long positions.
The top five short positions are
Third Wave Technologies
The fund would need Third Wave's friendly acquisition by
to fail in order for the shares to fall from their current level. On the other hand, Chattem's Icy Hot Heat Therapy skin patches burning some customers and not responding in a timely manner to Food and Drug Administration warnings could trigger license suspension, product seizures, or liability claims. Lastly, additional negative study results, such as Auxilium's recently disappointing hand treatment experiment, could hurt the shares and boost the portfolio value of the short position in this stock.
For 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.