Top Mutual Funds Since 1987
Kurt Brouwer November 6th, 2007
Richard Widows at theStreet.com wrote an excellent piece on the mutual funds leaders and laggards over the 20 years since the Crash of 1987. In it, he echoed a theme we discussed in The Stock Market Crash of 1987, namely that the 22% downturn that day was just a footnote in the annals of stock market history. Widows writes:
‘ Oct. 19, 1987, Black Monday produced the largest one-day percentage decline in stock market history. But for many buy-and-hold mutual fund investors, it proved to be little more than a relatively brief, albeit painful, bump along a path of long-term, annualized double-digit returns…’
Even though the Crash is but a footnote in the annals of stock market history today, back then it was a traumatic event. So, Richard Widows set out to find the funds that investors would have looked at back then. The theme of the piece is setting out which mutual funds have been leaders or laggards since the Crash (actually since September 30, 1987, which was just before the big drop on October 19, 1987). Here are the top five leaders and laggards from his list. He goes into more detail on them and other mutual funds in the piece:
LEADERS (since 9-30-87)
- Vanguard Health Care (VGHCX)
- Federated Kaufman (KAUAX)
- Vanguard Energy (VGENX)
- FPA Capital (FPPTX)
- Fidelity Select Software (FSCSX)
LAGGARDS (since 9-30-87)
- Vanguard Small Cap Index (NAESX)
- Progressive Capital Accumulation (PCATX)
- Midas Special Fund (MISEX)
- Midas Fund (MIDSX)
- GAMCO Mathers (MATRX)
Widows also points out some interesting facts about the mutual funds that made the list, either as leaders or laggards [emphasis added]:
‘…Even with the market implosion of 2000 to 2002 that followed the 1990s tech bubble, three tech/telecom funds made it to the top 20. Perhaps most surprising, the financial services sector, not considered very glamorous, placed four funds in the top 20. Patience proved a virtue for holders of the top performing funds. Although the longevity of their returns merited marathon status, their paces generally picked up over the past half decade. For 16 of the 20 winners, returns for the past five years exceeded their impressive overall returns for the 20-year stretch…’
Of the top five funds over this time period, only two were not sector funds — FPA Capital and Federated Kaufman. And, even those funds have a small cap style of investing. FPA Capital is a small value fund and Federated Kaufman is a small to midcap growth fund. The other top five funds are really focused on a given sector of stocks (healthcare, energy and software respectively).
We have used FPA Capital and another fund on his leaders list — Longleaf Partners (LLPFX). However, I’m not sure why he classifies them both as ‘Growth — Domestic’ because both are well-known value-oriented funds. We also mentioned Kaufman Fund (before it was acquired by Federated) in our book Mutual Fund Mastery (Times Business).
Widows also points out the disappointing results precious metals funds have produced despite their sterling [no pun intended] record over the past five years (for more on this topic see The Paradox of Gold). Precious metals have been very hot for six years or so, yet that strong performance has not made up for years of low returns:
‘…Precious metals proved disappointing. Respective annual returns of more than 30% over the past five years weren’t enough to pull a pair of precious metals funds off the list of the 10 worst-performing open-end equities of the past 20 years. One was among four stock funds to share the dubious distinction of burdening holders with negative average annual returns for the period…’
Another interesting point is that the sizzling performance of international funds for the past five years did not bring them into the leaders category for the 20-year period. In fact, the only international fund that made the list at all (DFA Japanese Small Cap) did so as one of the laggards because it sports an average annual return of 1.5%. One good point to remember though is that many excellent international funds began operations after 1987 so they could not be on this list.
‘…While funds with international focus — and especially emerging market offerings — have dominating [sic] the performance lists in recent years, only a single fund with a totally international prospective investment objective appears on the table. It combines what many thought were sure winners at the time: Japan and small stocks…’
By looking at mutual funds over this broad sweep of time we can see trends a bit more clearly. If you own diversified mutual funds, the likelihood that you will have one of the top 20 performers over any given period is fairly small. The flip side of course is that most bottom performers are narrowly-focused as well.
In my opinion, investors (as opposed to traders) should not chase whatever is the hot fund at the time. Instead, I believe you need to consider your goals, your investment aptitude and personality and then carefully develop a diversified portfolio that has the potential to meet your goals over a long span of time.
- Investing , Mutual Funds , Personal Finance
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