10 Stock Funds for Tough Times

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.

2000-02 bear market return: 8 percent
2008 year-to-date return: -32 percent

American Century Equity Income (TW E IX) . Companies with a history of doling out dividends are the focus at this team-managed fund. Most of the fund's assets reside in large-company stocks, which the managers scoop up on the cheap (according to valuation measures such as price-earnings ratios). The portfolio, which counts ExxonMobil, General Electric, and AT&T among its top five stocks, also holds stakes in midsize companies and convertible bonds. The fund's long-term results are solid: Its annualized 6 percent return over the past 10 years ranks in the top 1 percent of all funds that invest in large, bargain-priced stocks.

2000-02 bear market return: 6 percent
2008 year-to-date return: -24 percent

Royce Special Equity (RYSEX) . In general, small-company funds don't offer much by the way of safety, as small companies are riskier than their more stable, large-company brethren. But this fund isn't a bad choice for investors looking to fill that hole in their portfolio. Managed by Charles Dreifus since 1998, Royce Special Equity sticks to a disciplined strategy, which reflects the philosophy of legendary value investor Benjamin Graham. Dreifus buys companies that have a high return on capital, and he makes sure not to overpay. He also takes a skeptical eye to company balance sheets and sells stocks when he thinks they're fully valued.

2000-02 bear market return: 19 percent
2008 year-to-date return: -23 percent

Berwyn Fund (BERWX). Another solid choice for a small-company fund, the tiny $115 million Berwyn fund has a strong value bent. The managers buy stocks trading at deep discounts to expected earnings growth, and they aren't afraid to trim back on positions that have sharply appreciated. Recently, the fund's top holdings included several companies that have posted positive (or near positive) returns so far this year: Suffolk Bancorp, FPIC Insurance Group, and Granite Construction.

2000-02 bear market return: 6 percent
2008 year-to-date return: -31 percent

Forester Value (FVALX). Risk-conscious investors, listen up: In its history, Forester Value has lost money only in 2007, when it dropped 5 percent. It's down just 3 percent so far this year, which makes it the second-best performing U.S. stock fund (behind Embarcadero Alternative Strategies). The fund built up its cash stake earlier in the year, but recently, just more than 15 percent of its assets were in cash. Healthcare and food stocks make up Forester's top five, among them Johnson & Johnson and Kraft Foods, which have both held up relatively well in 2008.

2000-02 bear market return: 5 percent
2008 year-to-date return: -3 percent