Some diversified funds do well despite markets' wreckage
— -- Whenever you survey the scene of incredible wreckage — a 50-car pileup, for example, or a 6-year-old's birthday party — your eye is always drawn to the few things that survived. Look! That car didn't have a scratch! Look! The turtles are still here!
Surveying the wreckage of the mutual fund industry this year, a few funds have survived remarkably intact. What's even more remarkable is that a few might even be worth investing in.
The bear market has toppled many of the mightiest funds: The Growth Fund of America, the largest mutual fund in the galaxy, is down 35% this year; the Vanguard 500 fund, down 34%; Fidelity Magellan, down 46%.
But a tiny handful of diversified funds have managed to fall less than 10% — and a few have even eked out gains. For the purposes of this discussion, we're not talking about bear funds, which are designed to rise when the stock market falls. A bear fund that rises in a bear market isn't noteworthy.
Bears vs. bulls
The top two funds, Comstock Capital Value and the Prudent Bear funds, aren't bear funds per se, because they can bet on a market rise, if they choose to. Nevertheless, they are run by longtime, perennially bearish managers. Comstock Capital Value, for example, was started in April 1987 by Charles Minter and Stan Salvigsen, both of whom were bearish on the market. When the Dow fell more than 20% in one heart-stopping day in October 1987, the fund held up well.
Management never really got over its bearishness, which was unfortunate, because the stock market often rose in the intervening years. Comstock Capital Value has lost an average of 0.49% a year since its inception, according to Morningstar, the Chicago mutual fund trackers. Nevertheless, the fund's 47% gain this year deserves noting. Its largest holding is a bet against the Standard & Poor's 500-stock index.
Similarly, the Prudent Bear fund has been hating on the stock market for more than a decade. The fund has huge amounts of money market securities, or cash, in its portfolio, as well as a smattering of gold-mining stocks. What the fund earns in bear markets, however, it loses in bull markets: It's virtually unchanged since its inception.
