Wide divergence in returns highlights the importance of knowing what you own.
When investors try to determine why their fund is or is not performing well, they typically look for the most obvious reasons. If tech or energy has been hot, for example, they figure the funds that are thriving must invest more heavily in that sector than most peers do.
That idea does hold water to a certain extent. Broad themes do influence fund performance, and sometimes they can effectively explain a fund's ranking. Usually, though, there's more to the story. The specific traits of each fund's portfolio--or expense ratio, or other factors--can have a tremendous impact, sometimes overcoming the effects of larger patterns. A look at this year's world-stock category, which features an extremely wide range of performance, offers a potent illustration of this phenomenon.
Rising to the Top
For the year to date through Sept. 23, the range of performance for world-stock (also called global) funds, which split their portfolios between the United States and abroad, has been remarkably broad. The top performer, John Hancock Global Opportunities
The John Hancock fund, an all-cap portfolio, has benefited from its willingness to look beyond the biggest and most recognizable companies around the world. Small and mid-caps have outperformed by a long shot in 2010, and this fund owns far more of these than most other global funds. (Several of the category's other top performers are pure small-cap offerings, in fact.) A second differentiating factor: The fund's hefty emerging-markets stake. With roughly one third of its portfolio in emerging markets, John Hancock Global Opportunities has benefited more than most other global funds from the surge in many such markets this year.
However, don't overlook stock-specific effects. Note that Sirius XM Radio
A more prominent global fund that has also thrived this year has taken a different route. Wintergreen
Rough Time for Some
On the down side, several environment-themed funds join the DWS offering at the bottom of the world-stock chart. These funds, which include New Alternatives
Beyond these specialized funds, the category's cellar features many offerings without extensive emerging-markets or small/mid-cap exposure. One that fits that profile is Putnam Global Equity