Fund Watch


Kiplinger 25 Funds Run Up with the Bull Market

Manuel Schiffres

Our favorite no-load, stock mutual funds give a stellar performance in the two years since the market's bottom in March 2009.



Notwithstanding the stock market's 2.7% drop on February 22 and February 23, share prices have, on average, doubled since hitting their nadir in March 2009. So we decided this would be a good time to ask how the funds in the Kiplinger 25 have performed during this barnburner of a bull market. The answer: Quite nicely, thank you.

As the accompanying table shows (see How the Kip 25 Funds Have Performed in the 2009-2011 Bull Market), all but three of the 17 stock funds on the Kip 25, the list of our favorite no-load funds, achieved triple-digit total returns between March 9, 2009, and February 18, 2011 (the record of one fund, Akre Focus, does not go back to the start of the current surge). The returns (which are cumulative, not annualized) range from 157.0% for T. Rowe Price Emerging Markets Stock (PRMSX) to 61.9% for FPA Crescent (FPACX). Over that period, Standard & Poor’s 500-stock index returned 106.7%, and the MSCI EAFE index, which tracks stocks in developed foreign markets, gained 104.4%.

If nothing else, the bull-market performance of our picks underscores the point that the harder a fund falls, the more energetic is its recovery. Price Emerging Markets, for example, was the worst performer on our list during the bear market that preceded the current charge; it plunged 66.8% from October 9, 2007, through March 9, 2009. During that period, the EAFE index sank 59.2%. Dodge & Cox Stock (DODGX) was the worst-performing domestic fund among the Kip 25 during the market meltdown, plummeting 62.4%, compared with a 55.3% decline for the S&P 500. Since the bottom, Dodge & Cox has advanced 128.1%. The best domestic bull-market performer -- T. Rowe Price Small-Cap Value (PRSVX), with a gain of 143.0% -- lost 54.9% during the downturn.

The numbers work in reverse, too. Funds that have earned the least during the climb lost the least during the bear market: Fidelity Contrafund (FCNTX), down 48.2% during the bear market, gained 93.4% during the upturn; Vanguard Dividend Growth (VDIGX), off 42.3%, then up 77.9%; and FPA Crescent, down 27.9%, then up 61.9%. That Crescent would have held up better in the bear market and lagged during the bull run was entirely predictable, given that the fund normally has only about two-thirds of its assets in stocks and the rest in bonds and cash (the fund can also sell stocks short, a bet on falling share prices).

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Which fund produced the best combination of protection as the market swooned and participation as it roared? That honor goes to Meridian Growth (MERDX), run since 1984 by Rick Aster. Aster, who invests in reasonably priced, fast-growing, midsize companies, kept Meridian’s losses to 45.9% during the bear market and gained 132.1% since.

A note about Merger Fund (MERFX), which falls into the specialized category. Even though it invests in stocks, the fund and its strategy -- it buys stocks of companies that are being acquired after the deal is announced -- are so unusual that it is unfair to compare it with other stock funds. Its numbers -- a 5.0% bear-market loss, followed by a bond-fund-like 12.8% gain during the bull market --reinforce the point.

The most important point about all of these numbers is that they show that nearly all funds are hostage, in varying degrees, to the performance of the markets in which they operate. So, just as you shouldn’t have accused the managers of your funds for being idiots as they were helping to erode your wealth during the bear market, you shouldn’t confuse their astonishing gains during the current bull market with genius.



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