Even star stock funds take major abuse these days

Your stock fund's performance probably isn't as bad as your most recent statement says. It's worse.

The average diversified U.S. stock fund had tumbled 19.6% this year through the end of September. For the first nine days of October, however, the average fund was down 37.4% for the year. Funds have tumbled 41.2% in the 12 months since the stock market peaked on Oct. 9, 2007, nearly as much as during the entire 2000-02 bear market.

Many of the best-known funds and fund managers of the previous bull market have been hit hard. Dodge & Cox Stock fund, dodgx for example, fared well during the technology stock meltdown and posted impressive gains from 2002 to 2007. It has plunged 47.2% the past 12 months.

Another victim: Manager Bill Miller of Legg Mason Prime Value lmvtxearned accolades for beating the Standard and Poor's 500-stock index for 13 consecutive calendar years. Not this year. The fund has plunged 57.7% the past 12 months.

Many of the funds hit hardest were value funds, which look for beaten-up, unloved stocks in hopes that they will eventually return to Wall Street's favor. Unfortunately, many value funds invested heavily in financial stocks, which have been hit the hardest in this bear market.

"Value investing doesn't necessarily mean safety," says Russel Kinnel, director of mutual fund research for Morningstar, the Chicago investment tracker. Value funds looked better early in the decade because growth funds had gotten hammered so badly. Growth funds look for stocks of companies whose earnings are poised to soar.

Investors discovered that international investing doesn't mean safety, either. The $3.2 billion T. Rowe Price New Asia fund, prasxfor example, plunged 59.3% the past 12 months. Foreign markets often fall just as hard — or harder — when the U.S. market does.

Foreign funds also were hurt by the rising value of the U.S. dollar. When the dollar rises in value, the value of foreign stock holdings falls.

For retirement investors, the bear market has wiped out most gains for the decade.

An investor who put $100 a month into the American Funds Growth Fund of America for a decade, for example, would have had $14,562 in his account at the end of September. By Thursday, that would have shrunk to $11,671, not including the fund's upfront sales charge. An investor who had put $100 a month into his mattress for a decade would have $12,000.

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