3-year returns look better now that 2008 drops out

ByABC News
January 5, 2012, 12:10 AM

— -- The average stock fund has lost 0.5% the past five years, so don't expect to see many fund companies crowing about their five-year record. (Invest with us! We broke even!)

But three years? That's another story. The largest bear market since the Great Depression, which ended March 9, 2009, is sliding off the funds' three-year record.

Dropping a big loss can do wonders for a fund's record. The average stock fund has gained 51% the past three years. A year ago, the average fund's three-year record was a 4.7% loss.

Some funds will be happy indeed to drop a year off their records. Vanguard Windsor II, for example, lost 11% the three years ended Dec. 31, 2010. At the end of 2011, it's up 44%. Others that will see big gains in their three-year records:

•Fidelity Contrafund. Down 5.1% the three years ended 2010, up 50% the past three years.

•American Funds Growth Fund of America. Down 8% the three years ended 2010; up 44% the past three years.

•Dodge & Cox Stock fund. Down 15% the three years ended 2010; up 43% the past three years.

Funds aren't doing anything nefarious: They have to tell investors their performance over various periods, and over time, market conditions change. Nevertheless, it's always wise to look at a fund's performance in a really bad year, such as 2008, to see your worst-case scenario.

Beating the banks

"Top-performing financial services fund" is a bit like "best-looking boat on the seabed." But Charles Royce, head of the Royce Funds, says that the secret to doing less badly is fairly simple: Avoid banks.

Royce's fund ranked third last year among global financial services funds, an investing ocean full of icebergs. But his aversion to banks helped the fund have a bad year, rather than a disastrous one, falling 11.3% vs. a 19.5% loss for the average global financial services fund.

Money management firms, however, are another story. "T. Rowe Price has a terrific brand," Royce says. "I like the field and just bought Manning & Napier."

What's the allure? Royce, one of the industry's longtime veterans, understands the business. "You have no factories, no inventories, you get paid on time," he says.

The fund hasn't attracted much interest from investors: It's got just $19 million in assets.

Fund news

Artisan Partners looked at the market for initial public offerings and decided, "Maybe later." The Milwaukee-based money management firm had registered with the Securities and Exchange Commission to sell shares to the public, but has pulled the registration. "It was a good idea, bad timing," spokesman Mike Roos says. … Morningstar announced its fund managers of the year on Wednesday. Domestic stock fund managers of the year went to Artisan's Scott Satterwhite, James Kieffer and George Sertl. International fund managers of the year: William Browne, John Spears, Tom Shrager and Bob Wyckoff of Tweedy Browne. Bond manager: John Carlson, Fidelity New Markets Income.