Mutual Funds

And the Leaders Are ...

Recent results are ugly. But after two awful bear markets since 2000, stock funds should perform better in coming years.

By Manuel Schiffres, Executive Editor

From Kiplinger's Personal Finance magazine, September 2009

Historically, we've called this package, which lists the top-performing stock funds in a variety of categories over a variety of time periods, "And the Winners Are ..." But given the minus signs next to nearly all of the one-year returns and most of the three-year numbers as well, that mantle didn't sit right. It's pretty hard to call a fund that lost 25% over the past year a winner without bursting into laughter -- or tears.

Related Links

• Fund Rankings by Type and Style
• Download Our Complete Fund Rankings
• How to Navigate the Fund Tables
• The Best Exchange-Traded Funds

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The awful truth about the 2007-09 bear market is that it left few stock funds or sectors unscathed. The average one-year return for the 11 categories featured below ranged from -20% to -32%. Of the 110 funds listed as one-year winners, only 15 were in the black. Were it not for a rollicking rebound that saw U.S. stocks soar 35% from the market's March 9 low through June 30, with foreign stocks doing even better, the results could have been far worse.

The recent bear market, combined with the 2000-02 setback, has undermined long-term returns. As a result, the average ten-year returns in two categories -- large-company growth and large-company blend -- are also negative. For stocks to lose money over so long a period is highly unusual. The good news is that after such a horrendous decade, the odds favor better results in the coming decade. Performance doesn't have to rock. A return to normalcy -- average yearly gains of 10% a year or so for U.S. stocks -- would do just fine. We'd settle for 8%.

If you want bigger returns, you'll have to take on more risk, and that means investing more abroad, particularly in fast-growing emerging markets. Some might even argue that a nation such as China, with its bulging coffers, is a safer place to invest than a deficit-wracked country such as the U.S.

To see which funds did best in their categories and which we think are most likely to thrive in the more-normal market we anticipate in the coming ten years, see below and our ONLINE FUND RANKINGS that let you sort by style and type. You also can DOWNLOAD OUR COMPLETE RANKINGS.

LARGE-COMPANY GROWTH FUNDS Losing steam as investors regain their appetite for risk

Stocks in this category held up comparatively well through the bear market. After all, these are the sort of companies (think providers of pop and pills) that people patronize no matter the state of the economy. But the group has lagged since stocks bottomed on March 9 and investors began to seek riskier assets.

Reynolds Blue Chip Growth (symbol RBCGX) hit the top of the charts by piling into cash. Manager Fritz Reynolds's long-term record is spotty, however. Ken Heebner manages CGM Focus (CGMFX) aggressively. That got him into trouble over the past year as his bets on commodities and financials went awry. But when Heebner's good, he's really good. In buying market leaders, Fidelity Contrafund (FCNTX) manager Will Danoff doesn't obsess over the price he pays for a stock. Focus and Contrafund are members of the Kiplinger 25.

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