Funds in Positive Territory in 2008
This screen points to funds that have done well over the long haul and haven't been bleeding red lately.
The Dow Industrials Average posted its worst weekly slide in history during the week of Oct. 6, 2008, and the broad U.S. market has lost more than a third of its value for the year-to-date period. Even broad bond indexes are in the red. That's a very grim short-term report, and while most all mutual funds are down by significant amounts this year, a few have managed to stay above water.
To find mutual funds that have eked out a gain so far this year, we used the Premium Screener, but we add a few extra criteria to drill down to funds that Morningstar analysts recommend, in part because they've also delivered over the long-term. To start, select the Distinct Portfolios Only option, which limits the results to a single share class per fund. In this case, we'd also eliminate the bear-market fund category, as these funds are meant to perform well in down markets. As for performance, we selected year-to-date returns greater than 0%. (Year-to-date performance is updated daily.) And to find some long-term winners, we selected those with 10-year trailing return category rankings in the top third, as well as managers that have been at the helm for at least 10 years. And finally, we required that the funds be open to new investments of $25,000 or less and that they sport below-average price tags.
You'll note that no stock funds made the cut--even without the long-term performance criteria. That's not a surprise given that on average, domestic stock, international stock and balanced categories are down by double-digit figures for the year to date.
An important note--we're certainly not recommending that you dump your stock holdings now and move your money into one of these bond funds. As my colleague Karen Dolan has reminded us in this recent article, selling your holdings now means that you'll likely be cashing out near a market trough and may lead you to miss opportunities. We do, however, want to highlight the categories that have provided pockets of safety this year, as well as the mutual fund managers that have defended investors' capital.
Click here to view the Premium Screener's results as of Oct. 10, 2008. It returned the following fixed income funds:
We'll highlight a few of our favorites from the list.
FPA New Income (FPNIX)
We're not surprised that this intermediate-term bond Fund Analyst Pick, run by Robert Rodriguez, made this list. In December 2007, he relayed an announcement to shareholders that reflected his grim outlook on the economy. Rodriguez announced that he would not buy any high-yield issues until the credit crisis subsided. He put the same halt on stock purchases for FPA Capital (FPPTX), a closed small-growth fund. As we now know, Rodriguez's buyer's strike demonstrated foresight because the credit crisis has caused a massive sell-off in the fixed-income market. This call didn't come out of nowhere, though. Back in 2005, he was equally vocal in his concerns about the rise of undocumented mortgages and the strangely high credit ratings of risky mortgage securities. Rodriguez's decision, along with the decision to keep a large cash stake, has resulted in a gain of 2.9% for the year to date ended Oct. 10, 2008, while the typical fund in this group has lost 7.4%.
Sit U.S. Government Securities (SNGVX)
Of the resulting categories, short government funds have returned the most this year. The typical fund is up 2.2%, which this fund beat handily with its 3.9% gain. Manager Michael Brilley runs this fund in an unusual way as he and his team scour some of the more lightly traded areas of the government-bond market. Over the years they have built expertise in smaller pools of government-backed mortgages that offer short average lives and healthy yields, which has given the fund an income and yield advantage this year. This expertise plus a generally cautious stance on interest-rate risk has been a winning combination in 2008 and over the long haul. The fund's price tag isn't exactly a bargain, but obviously, management hasn't had a problem delivering strong returns in spite of it.
TCW Total Return Bond (TGLMX)
This is another Analyst Pick in the intermediate-term bond category, and it has posted 1.7% for the year to date ended Oct. 10, 2008. The fund's returns this year are especially impressive given that manager Jeffrey Gundlach has been bargain hunting for mortgage-backed securities, including collateralized mortgage obligations, ARMs, and inverse floaters that most investors have fled. With dozens of mortgage specialists and research analysts on his team, we think Gundlach has the resources necessary to keep finding the opportunities that have driven this fund's strong long-term performance.
Vanguard GNMA (VFIIX)
The slow but steady funds that invest in Ginnie Mae (GNMA) pass-throughs don't usually get much attention, but this year they have provided safety. This Analyst Pick falls into the intermediate government category, which on average has returned 0.56% so far this year. This one, however, is up 1.7%. Manager Thomas Pappas invests solely in GNMA issues, which are backed by the full faith and credit of the U.S. government. Therefore, they have no credit risk. Pappas doesn't take on much interest-rate risk with this fund, but he doesn't need to. The fund's razor-thin expense ratio means that he has a smaller hurdle to clear compared with pricier offerings.
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