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  • The Top Mutual Funds Over Five Years: The Bear’s Claw Marks Remain

    by Charles Rotblut, CFA

    Our five-year rankings of mutual fund performance continue to be influenced by the last bear market.

    The significant losses incurred by stock funds throughout 2008 are still negatively impacting their five-year annualized returns. In contrast, bonds occupy the top four spots and eight of the top 10 spots in the category ranking (Table 1). When looking at the rankings, keep this observation in mind, as the results show the scratch marks from the bear market’s claws.

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    Charles Rotblut is a vice president at AAII and editor of the AAII Journal. Follow him on Twitter at twitter.com/charlesrotblut.
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    We are seeing cracks in the glass ceiling that has kept many stock funds out of the top spots over the past few years. Consumer discretionary sector funds rank fifth in category performance and health sector funds rank sixth. The consumer discretionary funds included in our analysis fell by an average of 38.3% in 2008, but rebounded by 49.8% in 2009, recouping much of their losses. Health sector funds fared better in 2008, losing 26.0%, but also enjoyed a smaller rebound in 2009, gaining 28.5%.

    On the surface, these returns may seem to suggest that an investor who put money into either category at the start of 2008 would have emerged at the end of 2009 with a breakeven balance. The law of numbers does not work quite that way. Using consumer discretionary sector funds as an example, $100 invested at the very start of 2008 would have fallen to $61.70 by the end of the year (a loss of 38.3%). At the end of 2009, the balance would have rebounded to $92.43, as the investor realized a 49.8% return on his balance of $61.70 at the start of the year. The bigger the loss, the bigger the percentage return necessary to get back to breakeven. A 100% gain is required to breakeven from a 50% loss. This is why many stock fund categories lag their bond peers in the current five-year ranking: A significant rebound was required just to get them back to where they were at the start of 2008.

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    Charles Rotblut, CFA is a vice president at AAII and editor of the AAII Journal. Follow him on Twitter at twitter.com/CharlesRAAII.


    William Bogdan from PA posted over 3 years ago:

    I am a 100% Mutual Fund investor. Thank you very much for this thoughtful and useful performance information.

    James Harntnett from NY posted over 3 years ago:

    very informative.

    Jack Morrison from CA posted over 3 years ago:

    Bear markets are a fact of life.

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