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How Have Our Picks Done Versus Our Pans?

Our results are good, but we're always aiming to improve.

Michael Breen, 07/07/2009

We track every Fund Analyst Pick and Pan that we've made since we started in 1999. We track a batting average that shows what percentage of funds beat their peer group's average during their tenure on our lists. Here are some of the lessons we've culled from our latest review.

Taking Stock
The good news: When we're right, we're really right, and when we're wrong, we're not horrible. The batting average is an aggregated pass/fail grade over time. It doesn't consider the margin of victory or defeat. But the scale of our winning picks' performance is nearly 2.5 times the scale of the losers' underperformance. T. Rowe Price Media & Telecommunications PRMTX is a top dog. It has returned 5 times as much as its typical rival since we made it a pick in early 2007. Other stalwarts include longtime picks Artisan International ARTIX, Vanguard Wellington VWELX, and American Funds New Perspective ANWPX. All have posted big gains since we added them, while their peers are deep in the red. These picks have built themselves a big lead that will be tough to lose. Our two poorest-performing picks are specialty funds that lag badly, but nearly all other laggards trail their peers by such a small margin that a month or two of outperformance would vault them back into the winner's circle.

The opposite is true with our pans. Losers outnumber winners two to one, and the scale of their losses is nearly double the winners' gains. Nearly all of the pans are so far behind their peers that a recovery appears impossible. And the successful pans tend to be funds with narrow purviews, often using leverage, that just happen to have been on the right side of recent market trends. We don't think that they have staying power. A changing market environment could quickly wipe out their gains. For example, Rydex Inverse Dow 2X RYCWX provides 200% exposure in the opposite direction of the Dow Jones Index. It hit a home run in 2008 but has lost more than 25% the past month as the market has rebounded.

Strongest and Weakest Asset Classes
Our picks have done well across all asset groups with 76% succeeding overall, but our U.S. stock picks haven't distinguished themselves lately, with just 56% of them succeeding over the past five years.

 

 

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