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How'd They Do That?

Few funds outperformed in both 2008 and 2009. Here are two that did.

Shannon Zimmerman, 12/20/2010

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As investment learning opportunities go, the crash (and recovery) course the market provided between 2008 and 2010 is advanced-placement material. One of the many lessons learned was that what didn't go down also didn't go up, at least in relative terms, as the market seesawed between collapse and a massive rally. Still, while you'd expect the funds that fared well during 2008's downturn to have underperformed during 2009, there are outliers, funds that outclassed the competition in both market environments.

Exceptions to the Rule
All told, a review of the funds in Morningstar's database finds 48 diversified domestic-equity funds that ranked in their respective categories' top quintiles during both 2008 and 2009. That's an impressive feat, of course, but the devil's in the details.

Small-blend fund Catalyst Value CTVAX and large-growth concern FBR Large Cap Investor FBRPX were among the outperformers in both calendar years, for example, but each grew cautious as the year wound down, closing out 2008 with uncharacteristically large cash positions.

The venerable Yacktman YACKX, however, grew bold. Its average cash position hovered above 10% through most of 2008, but during the year's fourth quarter, the management team went shopping as the market sold off, putting virtually all of its money to work by the end of the year. Amid 2008's stampede to safety, the fund's showing owed substantially to its quality bias. Coca-Cola KO, PepsiCo PEP, and small-cap concern Lancaster Colony LANC--financially healthy dividend-payers all--were among the fund's top 2008 picks.

Yet Yacktman did even better in 2009, claiming the peer group's top spot during a rally paced by lower-quality stocks. The fund enjoyed outsized gains that year with Liberty Media LINTA, not a wide-moat concern but a company with a healthy balance sheet nonetheless. Microsoft MSFT and eBay EBAY were big winners, too, and both appeared among the fund's top holdings in 2008.PAGEBREAK

John Hancock US Global Leaders Growth USGLX enjoyed similar success in 2008. The fund's 35% loss was awful in absolute terms but nevertheless qualified for the large-growth category's top decile--and the fund was virtually fully invested throughout the entire year.

As with Yacktman, the Hancock fund's showing came as no surprise. Led by the team at subadvisor SGA, the fund favors the kind of high-quality companies that held up best as the market crashed. At the end of 2008, for example, its portfolio included outsize stakes in free-cash-flow kings such as Staples SPLS, Procter & Gamble PG, and payroll processor Automatic Data Processing ADP, each of which provided a bit of a cushion as the market swooned.

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