Few stock funds have found their way back to 2007 levels
Talk about the economy these days and most people mention recovery rather than recession. Yet with unemployment and foreclosures still running high, there’s a ways to go.
Is the same true of your mutual fund portfolio?
Few investors have recovered from the hit stocks took after the market’s late 2007 peak. Despite recent gains, the Standard & Poor’s 500 index is still down more than 20 percent since then.
The meltdown’s severity reminded many that recovery math can be daunting: After stocks lose half their value, it takes a 100 percent gain — not 50 percent — to get back to where you started.
That’s been the challenge for investors, and for stock fund managers who have struggled to make their shareholders whole again.
Among 21 categories of US stock funds, just two have returned investors to where they stood at the Oct. 9, 2007, peak, according to Morningstar. The calculations, through the end of last week, include fund expenses but exclude fund sales charges known as loads.
Most of the best-performing fund categories have been those specializing in defensive stocks that tend to fare better when the market declines.
“A lot of this has to do with 2008,’’ said Morningstar fund analyst David Kathman, noting that year’s nearly 39 percent plunge in the S&P 500. “It was hard to climb back if you were hit hard then.’’
Here’s a breakdown of which fund categories have made investors whole, and which haven’t:
THE WINNERS: The two categories with positive returns were funds specializing in consumer staples stocks, and tech funds.
Demand for consumer staples — think food and household products — held up in the recession. Shares of cereal maker General Mills Inc. are up 33 percent since the market peak, and Coca-Cola Co., up 23 percent. Consumer staples funds have an average annualized return of 3.4 percent since October 2007, turning $10,000 into $11,100.
Tech funds have left investors only slightly ahead, with a 0.1 percent average annualized return. The recession did little to hurt consumer demand for new electronic gadgets. Apple Inc. shares are up 90 percent since the market’s peak.
ANOTHER STAR: Economic uncertainty and inflation fears have driven gold prices up nearly 90 percent since late 2007. That’s why companies that mine gold and other precious metals have fared well, along with funds that specialize in buying those stocks.
Morningstar classifies precious metals funds in its alternative funds category, rather than in the 21 domestic stock funds. For all stock fund categories, domestic or otherwise, precious metals funds have been the stars since the market peak, with a nearly 21 percent average annualized return. Ten thousand bucks is now more than $18,000.
THE NEAR-GREATS: Health care funds were the number three performer among domestic stock fund categories. Close behind are small value funds, which specialize in stocks of small companies that generally produce steady earnings, and are considered cheap in price.
Still, those two categories have left investors with less than they started with: Both have averaged an annualized loss of 1 percent.
THE BIGGEST LOSER: Funds specializing in banks and other financial stocks fared worst, with an average annualized loss of nearly 12 percent. Ten thousand dollars has dwindled to $6,703. Blame the subprime mortgage crisis and credit crunch.
While few areas of the market have made investors whole again, three US stock funds have produced average annualized gains of greater than 15 percent: Reynolds Blue Chip Growth, Delaware Health Care, and Intrepid Small-Cap.
At the top-performer, Reynolds Blue Chip Growth, $10,000 has grown to $16,434.
The $159 million fund is managed by Frederick “Fritz’’ Reynolds. His returns rank in the top 1 percent of the large-growth fund category over the past 3- and 5-year periods. One reason: strong performance from such key portfolio holdings as Apple, Caterpillar, and McDonald’s.
Reynolds attributes his recent performance to lessons learned about how tough it is to recover. “I came to the conclusion that I had always been good at making money in a good market,’’ Reynolds said. “But if I could be good at preserving money in a bad market, that would be the key to success.’’