• / Free eNewsletters & Magazine
  • / My Account
Home>Research & Insights>Fund Times>A Look at the Last Market Cycle's All-Weather Funds

Related Content

  1. Videos
  2. Articles
  1. Top Investment Ideas for Retirement

    Retirement Readiness Bootcamp Part 5: Morningstar strategists share their top fund, ETF, and dividend stock picks to fill your retirement portfolio.

  2. Cream of the Crop: Our Favorite Funds in All Flavors

    Morningstar's Russ Kinnel, Sarah Bush, and Christine Benz highlight their top fund picks for domestic and foreign equity, core bond, inflation-protected securities, and much more.

  3. Bogle on Fund Industry Progress and Imperfections

    The Vanguard founder offers his thoughts on the need for money fund reform, the dilemmas with retirement planning and savings, the fiduciary duty of fund managers, and much more, in this video exclusive to Premium Members.

  4. Jacobson's Picks for Core Bond Exposure

    Morningstar's director of fixed-income research offers his tips for selecting a solid core bond fund along with some of his favorite choices.

A Look at the Last Market Cycle's All-Weather Funds

Plus, CGM Focus, Amana Funds, American Funds, and Fairholme did well.

Morningstar Analysts, 08/31/2009

Morningstar's fund analysts cover 2,000 mutual funds. Their full analyst reports, including Stewardship Grades, are available in Morningstar Principia Mutual Funds Advanced and Morningstar Advisor Workstation Office Edition.

It has been almost six months since the stock market (as measured by the S&P 500 Index) bottomed in early March. While it is anyone's guess as to whether the market will hit fresh new lows in the future, we thought it would be interesting to see which large-cap domestic-equity funds did the best over this past market cycle.

The short-term performance of equity funds is often nothing more than noise. But looking at a full market cycle, and preferably several full market cycles, can give an investor an idea of how a fund behaves in rising and falling markets.

Now, there are a lot of ways to define a full market cycle, but it should include both a bear and bull market. You can go from market peak to market peak, such as September 2000 to November 2007, or from trough to trough, such as October 2002 to March 2009. Both were about seven years, which is a decent amount of time to measure an investment approach.

For this exercise we focused on the Oct. 4, 2002, to March 9, 2009, period (trough to trough). We searched for large-cap actively managed funds (both load and no-load) with at least $100 million in assets as of August to see which did best. We also looked at how some of the industry's biggest and more interesting funds fared. Here they are.

Best-Performing Funds...........Anlzd Total Ret (%) 10/4/02 - 3/9/09
CGM Focus CGMFX: 10.1
Amana Trust Growth AMAGX: 8.75
Amana Trust Income AMANX: 8.03
Eaton Vance Dividend Builder EVTMX: 6.78
Vanguard Capital Opportunity VHCOX: 6.31

Largest Actively Managed Funds 
American Funds Growth Fund of America AGTHX: 1.96
American Funds Invest Co of Am AIVSX: 0.28
Fidelity Contrafund FCNTX: 2.96
American Funds Washington Mutual AWSHX: -0.93
American Funds Fundamental Investors ANCFX: 2.59
Dodge & Cox Stock DODGX: -1.47
Vanguard Windsor II VWNFX: -0.20
Davis NY Venture NYVTX: -0.88
Fidelity Growth Company FDGRX: 4.21
Vanguard PRIMECAP VPMCX: 4.06

Popular Funds 
Fairholme FAIRX: 3.88
Sequoia SEQUX: -1.31
T. Rowe Price Equity Income PRFDX: -1.50

S&P 500 Index Fund 
Vanguard 500 Index VFINX: -1.11

Overall, out of the 662 actively managed large-cap funds with more than $100 million in assets, 396 (or about 59%) were able to beat the Vanguard 500 Index fund over the time period examined. This analysis leaves out the hundreds of poor-performing funds that were either closed or merged away during the same period. For example, almost 400 funds have been closed or merged so far this year alone.PAGEBREAK

Still, active managers, even those running funds with huge asset bases like the American Funds, acquitted themselves well. The big disappointment on the list is Dodge and Cox DODGX, which was hurt by its financial holdings last year. Sequoia SEQUX also was a letdown. The fund held up well last year, but that could not make up for the poor showings it had in 2003, 2004, and 2006. CGM Focus CGMFX was an upside surprise, especially after its total disaster last year (a 48% loss). Strong years in 2005 (up 25%) and 2007 (up 80%) were the reason it was able to hang on to the top spot.

Both Amana funds near the top of the list make a lot of sense, and we would not be surprised if they land near during this next market cycle. Manager Nick Kaiser invests in accordance with Islamic law, which means he holds few companies with meaningful amounts of debt. This is partly why the funds did well last year, as it held few financial companies. But both funds also did well in prior years; each slightly trailed the S&P 500 Index only once since 2002 (Growth AMAGX in 2006, Income AMANX in 2003).

Finally, Fairholme FAIRX and CGM Focus are truly all-weather champions: Both landed near the top of the charts in the trough-to-trough and peak-to-peak cycles. CGM Focus gained an annualized 15.49% from September 2000 through March 2009, and Fairholme returned an admirable 5.5% over that time period. The S&P 500 lost about 7.5% annualized during the same period.

Fidelity and TIAA-CREF Add Index Funds to Target-Date Lineups
Fidelity will soon launch 12 Fidelity Freedom Index funds. The firm already has an actively managed lineup of target-date funds in its Freedom Funds series, which launched in 1996. TIAA-CREF is following suit and will add a similar lineup to its actively managed life-cycle funds.

The new Fidelity Freedom Index funds will be significantly cheaper than their actively managed target-date funds and will have slightly different glide paths. According to Fidelity, all of the funds will have an expense ratio of just 19 basis points. This is just 1 basis point more than the Vanguard lineup of target-date funds, which also employ cheap index funds. Meanwhile, TIAA-CREF's new funds will have an expense ratio between 19 and 23 basis points.

RS is losing manager Bill Wolfenden III as of Sept. 1. Wolfenden has been a manager on RS Smaller Company Growth RSSGX since 2001. D. Scott Tracy will remain as the sole manager on the fund until it merges with RS Small Cap Growth RSEGX.

One big firm continues its push into ETFs, while another says it is unlikely to enter the ETF space. PIMCO has rolled out its second ETF, a short-maturity Treasury Inflation-Protected Securities fund. The 1-5 Year U.S. TIPS Index Fund is the first of three planned ETFs the firm has that will mainly invest in TIPS. Meanwhile, multiple press reports note that Fidelity president Rodger Lawson has no plans for a big push into ETFs, at least for now. However, because of the fast-growing ETF market, there are internal discussions at Fidelity about whether the firm should follow the likes of Vanguard and other firms, which have made a big push into the market, while they still focus on providing a wide lineup of traditional mutual funds.

ING SmallCap Value Multi-Manager SAAAX, ING International Capital Appreciation IACAX, ING International SmallCap Multi-Manager NTKLX shareholders should see a significant reduction in their expense ratios if asset levels hold firm. ING is set to waive 50% of its fees for the fund with all of the subadvisors' management fees now coming in at less than 70 basis points.

Get fund news delivered to your e-mail inbox every Monday. Sign up for our free Fund Times e-newsletter

©2017 Morningstar Advisor. All right reserved.