It's official: So far this year, not a single diversified U.S. stock fund has made money. Given this week's unrelenting market declines, that shouldn't come as a huge surprise. Just about any mutual fund that's in the black right now is one that's using leverage. For example, the fund universe's top performer so far this year is Direxion NASDAQ-100 Bear 2.5X, which aims to deliver 250 percent of the daily inverse performance of the Nasdaq 100 index. That fund is up an astonishing 145 percent (see my recent post on ultra-leveraged funds.)
Just five diversified stock funds are down less than 10 percent year to date, and almost all have achieved this relative success by stockpiling huge amounts of cash. Here's the list:
Apex Mid Cap Growth, -1.5 percent
With less than $300,000 in assets, this tiny fund focuses on small, fast-growing companies (although it contains a few biggies including Amazon.com and Applied Materials). Its record is marked by big swings: It lost 42 percent in 2002, gained a whopping 165 percent in 2003, then lost 6 percent and 24 percent in 2004 and 2005, respectively. A major point worth mentioning: At 7.4 percent, Apex's annual expenses are out of this world. The fund's relatively miniscule asset base is the main culprit.
Reynolds Blue Chip Growth, -5.1 percent
Run by Frederick Reynolds, this fund normally invests in the market's giants. But currently, nearly 100 percent of its assets are parked in cash, with the exception of tiny positions in Google and Apple. Enough said.
PMFM Managed Portfolio, -5.4 percent
This fund uses quantitative screens to invest in low-risk market sectors. More than half of its assets are currently in cash, and the rest sit in three exchange-traded funds: Rydex Russell Top 50, Health Care Select Sector SPDR, and Consumer Staples Select Sector SPDR. The fund, which launched in 2006, gained more than 7 percent in 2007, thanks to heavy cash holdings.
Gabelli ABC, -5.7 percent
Managed by Mario Gabelli, ABC is also full of cash (61 percent of assets). Another thing that's kept the fund relatively afloat is the use of an arbitrage strategy. Top holdings include Rural Cellular Corp, acquired by Verizon Wireless; WM Wrigley Jr. Co, acquired by Mars; and Safeco, acquired by Liberty Mutual. This strategy has been successful, as the fund's five-year annualized return of 4 percent ranks in the top 1 percent of Morningstar's mid-cap blend category.
Forester Value, -7.8 percent
Forester built up its cash stake earlier in the year, but recently held just over 15 percent of its assets in green. The fund invests in mostly large, value-oriented companies, and also uses put options to guard against declines. Healthcare and food stocks recently made up its top five names. Among them were Johnson & Johnson and Kraft Foods, which have both held up relatively well over the past year. The fund's safe-and-steady positioning has worked so far: The only year it lost money was 2007, when it dropped 5 percent.