Mutual Funds That Bookend the Decade

A look at the fund world's top performers in 2000 and 2009

By SHARE

As the decade draws to a close, it seems as if everyone wants to take a trip down memory lane. After all, at least for investors, healthy doses of nostalgia are the perfect sedative when thoughts of 2007 and 2008 intrude. With that in mind, U.S. News has organized a class reunion of sorts. It will be exactly like the high school and college reunions you've come to know and love—but without the cheap food, awkward conversation, and lingering feelings of inadequacy.

[See the 10 Strangest Mutual Funds.]

Without further ado, it's time to introduce the mutual fund Class of 2000. What follows is a list of the five best-performing funds* from the opening 12 months of the decade (the period ending Dec. 31, 2000), with some details about how they've fared since then. After that, we'll take a look at the Class of 2009.

The Class of 2000:

Evergreen Health Care (EHCYX)

2000: 119.5 percent

2009: 16.5 percent

Five-year annualized return: 2 percent

Manning & Napier Life Sciences (EXLSX)

2000: 87.3 percent

2009: 49.1 percent

Five-year annualized return: 5.6 percent

Munder Healthcare (MFHYX)

2000: 87 percent

2009: 14.5 percent

Five-year annualized return: 0.7 percent

BlackRock Energy & Resources (SGLSX)

2000: 84.8 percent

2009: 70.5 percent

Five-year annualized return: 12 percent

Eaton Vance Worldwide Health Sciences (ETHSX)

2000: 81.6 percent

2009: 8.1 percent

Five-year annualized return: 3.6 percent

*Allianz RCM Biotechnology was the fifth-best performer in 2000, but it no longer exists (the fund was rolled into the Allianz RCM Wellness Fund last year). As a result, Allianz RCM Biotechnology was unable to make it to the reunion.

As you've no doubt inferred, the first year of the decade was a triumphant period for healthcare funds: As a group, Morningstar's U.S. health category returned an impressive 56.8 percent in 2000. Jeffrey McCormack, an analyst for Manning & Napier Life Sciences, attributes this period of dominance to an easing of Clinton-era reforms that had depressed stock prices in the healthcare space.

[See How Healthcare Reform Could Affect Your Investments.]

"It crippled the healthcare marketplace, specifically healthcare providers," he says of the Balanced Budget Act of 1997, which included significant changes to the way providers were reimbursed. As these restrictions were relaxed, healthcare stock prices rebounded strongly. "That alleviated a lot of the pressure on the healthcare sector and led to a banner year in 2000," McCormack says.

It seems somewhat ironic that as the decade ends, the healthcare sector is once again mired by legislative uncertainty. History, it seems, has come full circle. Still, pockets of the Class of 2000 have managed to hold up well in the current climate. Manning & Napier Life Sciences, for example, has returned 47 percent so far this year. Nevertheless, U.S. healthcare funds' combined returns of 20 percent year to date are somewhat lackluster in a market that has fueled furious binges in other categories. As proof of this trend, meet the (year-to-date) Class of 2009:

ProFunds Ultra Latin America Inv (UBPIX): 206.3 percent

Direxion Monthly Latin America Bull 2x Inv (DXZLX): 176.1 percent

JPMorgan Russia (JRUAX): 151.1 percent

ING Russia (LETRX): 125.5 percent

Oberweis China Opportunities (OBCHX): 124.5 percent

So what does this tell us about the years between 2000 and 2009? Not much. After all, these returns are merely snapshots that bookend what was perhaps the most turbulent decade in the history of the financial markets. For example, this year's top performer—ProFunds Ultra Latin America—lost nearly 87 percent in 2008. And despite their mediocre numbers this year, health funds held up better than most of their peers during the decade's most challenging moments. That's because the defensive nature of health stocks, while not very useful now, helped shield the funds during periods of market turmoil.

As a result, what really matters is not how the decade started or how it will conclude, but rather the lines that connect the dots on either end: the sharp drops in the first few years, the steep upswing between 2003 and 2007, the unfathomably harsh falloff during the recession, and the optimistic trend since March. In other words, it has been quite the jagged set of lines.

Also important, of course, are the patterns that the macro-level lines don't quite manage to encapsulate—the subtle movements that quietly molded the decade. Of particular relevance to the Class of 2000, for example, are the gradual changes that have shifted the landscape in the health space. Notably, while pharmaceutical and medical device companies had a stronghold on innovation in the '80s and '90s, this decade has seen new torchbearers, according to McCormack. "What we've seen over the last 10 years is kind of a transition in who the innovators are in the healthcare industry," he says. "Over the past 10 years, the innovation in the industry has primarily been driven by biotechnology companies, life sciences tools companies, and healthcare information technology."