Thursday, March 07, 2013 6:00 pm
Dow's recovery is old news to these top funds
By MARK JEWELLAP Personal Finance Writer
To the managers of a select group of mutual funds, that's not a big deal. They crossed the recovery milestone some time ago.
They needed just two or three years to make up for the losses they incurred after the market peaked in October 2007. That's quick work, compared with the nearly five and a half years it took the Dow to return to its pre-crisis level of 14,164 points. The Standard & Poor's 500, a broader index that's a benchmark for many stock funds, remains about 1 percent below its level of Oct. 9, 2007.
Examine the records of the top-performing stock funds since that date, and one thing stands out: Nearly all were unusually successful at limiting their losses in 2008, when stocks plunged 38 percent.
Amid a crisis, losing 30 percent was an acceptable result. It's an accomplishment achieved by the vast majority of the large-cap stock funds with the strongest overall results since October 2007, according to Morningstar. Twenty of the 30 top-performers posted 2008 losses of less than 30 percent.
The best in the bunch since October 2007 lost just 5.1 percent the following year. Manager Frederick "Fritz" Reynolds of the Reynolds Blue Chip Growth fund (RBCGX) sensed trouble in the housing market and began selling stocks and holding onto cash as subprime mortgage troubles rippled into the stock market. When the recovery rally began in March 2009, Reynolds shifted back into stocks.
Such good timing is often a matter of luck as much as skill, and Reynolds posted mixed results in 2009 through 2012.
But the fund's 2008 result was so strong that Reynolds Blue Chip Growth possesses the top record among all large-cap stock funds since Oct. 9, 2007, according to Morningstar. The growth stock fund posted a total return of nearly 88 percent through Monday. That's a huge margin over the broader stock market.
If it seems odd that a single year can have such a big impact over a 5-year period, consider the realities of recovery math. If stocks lose 50 percent of their value, you'll need a 100 percent gain - not 50 percent - to get back to where you started. That's comparable to recent experience, as the Dow tumbled 54 percent from October 2007 to March 2009. It has since gained 119 percent.
The takeaway for investors is that limiting losses during market declines can be crucial, because losses have a bigger impact on long-term results than comparable gains.
Here's a look at other top-performing funds since October 2007 in their respective large-cap categories. These funds invest primarily in large U.S. companies, the types of stocks that typically anchor a well-diversified portfolio:
YACKTMAN FOCUSED (YAFFX) and YACKTMAN (YACKX)
These two funds earned the top results in the large-cap blend category, posting returns of 75 percent and 68 percent, respectively. Yacktman Focused is a leaner version of its sibling, with a slightly smaller number of stocks in its portfolio. There's plenty of overlap among the funds' top holdings. They're also managed by the same teams: Donald Yacktman, his son Stephen, and Jason Subotky. They tend to stick with their favorite stocks for years rather than make frequent trades. For example, both funds have owned shares of Coca-Cola and Pfizer for about a decade. Both possess top-rung 5-star ratings from Morningstar based on past performance.
SUNAMERICA FOCUSED DIVIDEND STRATEGY (FDSAX)
This was the top performer among large-cap value funds, which primarily invest in stocks considered inexpensive relative to the earnings they generate. SunAmerica Focused Dividend Strategy posted a total return of nearly 37 percent. Although the fund narrowly edged out its peers in 2008, it beat 98 percent in 2009 and 99 percent in 2011. Brendan Voege has managed the fund since 2006, often holding onto his favorite dividend-paying stocks for several years. Pfizer, DuPont, Verizon and AT&T have been in the portfolio since 2006, for example.
With such strong results since the financial crisis, these funds have helped investors repair their portfolios much faster than most. Yet caution is advisable for anyone who might think it's a terrific time to invest in these funds simply because they led their peers throughout the financial crisis and its aftermath.
"Investors generally have poor timing," says John Rekenthaler, Morningstar's vice president of research. "They come into the market when it's at a peak. They buy funds based on their 3- and 5-year performance. When the numbers look good, they tend to buy at too high a price."
Rekenthaler doesn't think the peak is here yet, but he's trying to invest his own savings with a more skeptical eye nowadays: "I liked it better when everybody hated stocks, when the headlines were all about uncertainty, and everyone was worried. The market has done great since then."
Questions? E-mail investorinsight(at)ap.org