New York (TheStreet) -- The 10-year track record of many stock funds improved dramatically recently. The average large blend fund returned 7.3% annually during the decade through September, according to Morningstar.A year earlier the category had only returned 2.2% annually for the previous 10 years. The 10-year record of small value funds jumped to 10.2%, up from 6.7% a year earlier. The returns climbed because the market has rallied sharply in the past year. In addition, some bad results from 2002 dropped out of the latest 10-year numbers. The big shift in return data should serve as a reminder that it can be a mistake to focus exclusively on a single performance number. Just because a fund has done poorly in one time period does not mean that it lagged in other years. Consider European funds, one of the least-loved categories in the current market. Damaged by the euro crisis, the funds lost 5.8% annually during the past five years, lagging the S&P 500 by about 5 percentage points. But the 10-year return looks very different. Helped by some strong years early in the decade, European funds returned 10.0% annually in the past ten years, outdoing the S&P 500 by 2 percentage points. These days many investors appear to be traumatized by the results of a single year, 2008, when the S&P 500 lost 37%. Since then investors have been dumping stock funds and shifting to bonds. But the move into bonds has clearly been a mistake, since stocks have outperformed fixed income by wide margins during the past three years. Stocks of all kinds have outperformed during the past 10 years. While the Barclays Capital Aggregate Bond ( AGG) index returned 5.3% annually during the past 10 years, mid-cap growth funds returned 9.4%, and real estate funds gained 10.5%. Bears note that the S&P has made little progress since technology stocks collapsed in March 2000. That's true enough. But helped by reinvested dividends, the S&P has returned 4.5% annually during the past 15 years. If panicked investors consider the 10-year and 15-year returns -- instead of focusing on the results of the financial crisis -- they would be less likely to dump stock funds now.
In fact, the odds are very good that stocks will do at least as well in the next 15 years as they did in the last 15. The S&P 500 currently pays a dividend yield of 2.2%. So stocks only have to achieve very modest capital gains in order to produce total returns in excess of 4%. When you are comparing funds, keep in mind the importance of reviewing returns from many time periods. To appreciate why, consider two large growth funds, Hartford Growth Opportunity ( HGOAX), which returned 10.8% annually during the past 10 years, and Jensen Quality Growth ( JENSX), with a return of 6.3%. At first glance, you may prefer the top performer. But the picture is very different when you consider that Jensen returned 2.4% annually during the past five years, and Hartford lost 1.1% during that time. The reason for the gap is that the two funds follow very different strategies. Jensen is an extremely cautious fund. The portfolio managers only take the highest-quality companies that have delivered high returns on equity for 10 consecutive years. Such stocks excel in downturns, when investors become nervous and seek security. The solid holdings enabled Jensen to outdo 98% of its peers during the turmoil of 2008. That helped the fund shine during the past five years. But the blue chips tend to lag during roaring bull markets when investors have enough confidence to bet that shaky companies will rebound. As a result Jensen trailed competitors during the rally that swept up stocks from 2003 through 2007. That showing hurt 10-year returns. Hartford follows a much more aggressive approach, loading up on fast-growing technology shares and sometimes taking volatile mid-cap stocks. The formula enabled the fund to soar earlier in the decade. But the strategy caused big losses in 2008 and pulled down 5-year returns. Which fund should you take? Either Hartford or Jensen makes a sound choice for investors who understand their approaches. But before you make any decision, you should recognize how the funds have performed under different conditions and in a variety of time periods. At the time of publication the author held no positions in any of the stocks mentioned. Follow @StanLuxenberg This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.