10 Stock Funds for Tough Times

These investments are holding up better than most.

By + More

So far this year, not a single diversified stock fund has made money. To be frank, most have gotten creamed: According to Morningstar, the average loss for funds that invest in the United States is 42 percent and, for those that invest internationally, 50 percent. Just about any mutual fund that's in the black right now is one that's using leverage or is narrowly focused; meanwhile, most funds that have lost less than 10 percent have done so by stockpiling huge amounts of cash.

Here's a look at 10 relatively conservative stock funds with solid records that are holding up better than their peers while still keeping the bulk of their assets in stocks. Most of these funds have managers with long tenures who seldom trade and who stick to their guns, and all put up positive returns during the last bear market (March 24, 2000, through Oct. 9, 2002).

Mairs & Power Growth (MPGFX). The team at Mairs & Power invests in what it knows: Minnesota. Most of the $1.7 billion fund's assets are in companies based in that state, which is the fund's home base. And these aren't obscure names: Medtronic, 3M, and Target were recently among the top five holdings. Low portfolio turnover is another of the fund's hallmarks. It's an incredibly low 4 percent, which implies an average holding period of roughly 20 years for each stock. The team, which seeks steadily growing companies with solid management, has steered the fund to a 7 percentage-point lead over the S&P 500 so far this year. The fund has also outrun 95 percent of its peers, which invest in a mix of growth and value stocks.

2000-02 bear market return: 5 percent


2008 year-to-date return : -32 percent Yacktman and Ya c ktman Focused (YACKX ; YAFFX). The head honcho of these funds, Donald Yacktman, likes to sift through Wall Street's bargain bin for profitable business selling at deep discounts. This is his kind of market. During the 2000-02 bear market, the Yacktman Fund gained 14 percent by holding cash-rich companies and keeping a quarter of its assets in greenbacks; Yacktman Focused, which holds fewer stocks, returned 12 percent during that period. Again, a hefty cash stake has helped both funds mitigate the steep losses suffered by many of their peers so far this year. You'll find big brand names like Coca-Cola, Procter & Gamble, Microsoft, and PepsiCo in both funds.

2000-02 bear market return: 14 percent; 12 percent


2008 year-to-date return : -30 percent; -28 percent Fairholme (FAIRX). Bruce Berkowitz's $6.7 billion fund may be down 33 percent so far this year, but that's still better than 92 percent of all large-company funds that invest in a blend of growth and value stocks. Berkowitz pays careful attention to a company's cash flow: He favors those with a large cash pile, which provides flexibility to fund acquisitions, increase dividends, or buy back stock. Pfizer, the triple-A-rated, cash-rich pharmaceutical giant, recently occupied the fund's top spot.

2000-02 bear market return: 12 percent


2008 year-to-date return : -33 percent FAM Equity-Income (FAMEX). Managers Tom Putnam and Paul Hogan look for small and midsize dividend-paying companies with strong cash flow, little or no debt, and solid management teams, and they buy when shares are trading at a discount to what they think they'd be worth if they were sold or broken up. This strategy has produced respectable, although not staggering, long-term returns. Over the past decade, its average annual 3 percent gain has beaten the S&P by 4 percentage points.

2000-02 bear market return: 11 percent


2008 year-to-date return : -33 percent FAM Value (FAMVX) . This fund's 10-year record—a 4 percent annualized return—is better than its cousin's. Tom Putnam has steered FAM Value since its 1987 inception (comanager John Fox came on board in 2000). Just as with Equity-Income, the managers look for quality businesses with strong balance sheets, solid management teams, and shares that are selling at a discount. Although dividends are still important, they're less emphasized in this fund, as appreciation is the primary focus. FAM Value's top holdings include White Mountains Insurance Group, Berkshire Hathaway, and Market Corp.