The Top Funds Over Five Years: Gold, Emerging Markets & Diversification Lead
Gold and emerging market stock funds held onto their top spots in this year’s ranking of the top mutual funds over the past five years.
Bond funds were also very prevalent among the best-performing categories. Conversely, large-cap domestic funds remained among the worst-performing categories.
In this article
- Gold Continues to Glitter
- Emerging Markets Aided by Growth
- Bond Funds Among Leaders
- A Winning Portfolio
- Fund Listings
- Further Evaluation
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The numbers reflect both the importance of diversification and the frustration still felt by many investors. Those who maintained a heavy allocation to U.S.large-cap stock funds since the start of 2006 found themselves more reliant than they would have liked on dividends for a source of total return. Those who owned funds from a variety of categories are now feeling rewarded for withstanding both the downward and upward volatility of the past several years.
What may not be as apparent is the importance of proactive rebalancing, as opposed to reactive selling. For example, though large-cap stock funds lag on a five-year basis, they rank in the top half in terms of 2010 performance. A simple strategy of annual rebalancing would have allowed you to buy low and sell high, the exact opposite of what many panicked investors did during the last bear market.
Thus, though five-year performance does provide useful insight into trends, you should not use it as a timing indicator to determine which categories to go into and which to jump out of. Rather, you should use it as a guide to help identify which funds have consistently outperformed their peers over a long period of time. A fund manager can get lucky from year to year, but it takes skill to beat one’s peers for an extended period of time.
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