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The 10 Biggest Winners and Losers of 2007

A look at the top and bottom of the mutual fund charts.

Russell Kinnel, 01/15/2008

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.

We've crowned the managers of the year for 2007--and you may have noticed that they didn't have the top returns of the year. They did well but others did even better. That's because we value long-term performance, stewardship, and risk management much more than a blowout year. In fact those are all better ways to select funds for the future than going off single-year returns. You can ask someone who bought a hot Internet fund in January 2000 or a bear market fund in January 2003.

Yet there are lessons to be learned from looking at the best and worst performers of the year. You can see what worked the best that year and what areas are the riskiest. Making either the best or worst list implies a boatload of risk. So, let's have a look at the funds with the best and worst returns of 2007.

Direxion Commodity Bull 2x DXCLX +88%
As the name implies, this fund aims for twice the exposure to commodity prices by using heaping spoonfuls of leverage. With oil finishing the year near $100 and lots of other commodities soaring, this was the year to own it.

Direxion Latin America Bull 2x DXZLX +84%
Latin American stocks have a hefty natural-resources bent to them so in a year when commodities do well, this fund is a good bet. And bet is the right word for a leveraged Latin American Fund. I think Vegas would be more fun if you want to gamble.

CGM Focus CGMFX +80%
Now it's getting interesting. Ken Heebner made our manager of the year nominees list because he had solid long-term returns to go with an amazing year. His calls were absolutely brilliant. He owned emerging-markets stocks such as Value Overseas, a Brazilian iron ore exporter, and Vimple Communications of Russia. On the flipside, he shorted Countrywide Financial CFC, which got ensnared in the subprime mess. Heebner is an outstanding manager, but if you buy in remember this is a once-in-a-lifetime year and he sometimes gets it wrong. He's had losses of more than 20% in a single year at CGM Capital Development and that certainly could happen at this fund, too.

AIM China AACFX +75% and Nationwide China Opportunities GOPAX +74%
It was a great year to be in China. On the downside, some investment pros say Chinese stocks have gotten way overpriced and expect a slowdown in growth. (See wsj.com for a good article that ran last week on the subject.) I'm also wary of these funds' expense ratios which are around 2.00%.

Matthews China MCHFX, Matthews India MINDX, T. Rowe Price New Asia PRASX +70%, 64%, 66%
These are probably the three best ways to bet on various parts of Asia. They have skilled experienced managers, decent expense ratios, and sober strategies. That said, I still wouldn't buy at this point.

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