After suffering devastating losses in 2008, mutual funds are slowly clawing their way out of a deep hole—although they have plenty of ground left to make up. Since the start of the year, the average fund that invests in a mix of U.S. sectors has gained 3.6 percent, compared with just 0.2 percent for the S&P 500 index, according to Morningstar. And so far, actively managed funds are leading the pack with a 3.8 percent return, versus 1.2 percent for index funds.
Categorywise, large growth, midsized growth, and small growth funds have fared the best so far this year (although small companies have led the rally over the past three months). But not all of the top performing funds fall into one of those categories. Here's a look at some of the front-runners among diversified U.S. stock funds:
Elite Growth & Income. This $37 million fund, which invests in mostly large and midsize companies, has rocketed up 36 percent since the beginning of the year, largely because of big bets on a couple of obscure stocks that have posted huge gains. Those are XL Capital, an insurance company that recently traded at $11 but has more than doubled since the beginning of 2009, and Antigenics, a biotechnology company that started the year at 48 cents a share and now trades at just under $2. The former recently struck a deal with Warren Buffett's Berkshire Hathaway in which Berkshire agreed to provide guarantees on XL's insurance policies. Antigenics recently reported that its kidney cancer treatment helps patients live significantly longer. Elite, which holds just 27 stocks and has more than two thirds of its assets in healthcare and financial stocks, is not for the faint of heart. It lost more than half its value in 2008 (but its performance over the past decade ranks it near the middle of large-blend funds).
William Blair Small Cap Growth. The stocks of small, fast-growing companies have led the market's rebound over the past three months, and William Blair Small Cap Growth is sitting pretty with a 34 percent gain so far the year. The $522 million fund, which holds scads of tiny microcap stocks, has hit well over a dozen home runs with stocks that have appreciated more than 50 percent since the beginning of 2009. Wins so far this year include American Apparel, Sonic Solutions, and consumer conglomerate Jarden Corp., which owns brands that include camping gear retailer Coleman and Mr. Coffee. The fund has a long road to recovery, though, since the market punished microcaps in 2008, leading to a 47 percent loss for the year.
Van Kampen Equity Growth. Fast-growing, big-name companies make up the bulk of this $270 million fund's holdings. Boosted by Amazon, Apple, Corning, and Marvell Technology Group, which each have logged gains of more than 50 percent, Van Kampen Equity Growth has posted a 32 percent gain since the year's start. The fund has lost an annualized 1 percent over the past decade. Still, that performance beat 62 percent of its peers, which invest in large, fast-growing companies. The fund ranks near the top 15 percent of its category over the past three and five years.
Touchstone Large Cap Value. Beaten-up stocks with turnaround potential are the mainstay of this fund. Its fairly concentrated portfolio recently included a handful of companies that have yet to rebound, such as Bank of America and Centex, but Touchstone's successful picks more than compensate. Such holdings as Sprint Nextel, Navistar International, and Genworth Financial have more than doubled since the beginning of the year, and others like Motorola and Tyson Foods are up more than 30 percent. Although the fund has gained more than 31 percent so far this year, it ranks among the worst-performing funds in its category over the past one and three years.
AIM Mid Cap Basic Value. This bargain-hunting fund invests in mostly midsized companies (although it holds some large, small, and even tiny companies) that are diversified across industries ranging from semiconductor equipment to movies and entertainment. Stocks in AIM Mid Cap's portfolio that have taken off this year include J. Crew, which has almost doubled; Sun Microsystems, which has more than doubled; and Cooper Companies, which is up more than 60 percent. Although the $133 million fund is blasting off in 2009 with a 30 percent gain, its performance over the past five years ranks it among the bottom third of its peers.