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By Jason Stipp | 08-29-2010 06:00 AM

Top Six Surprises in 2010

Morningstar's Christine Benz on the runup in Treasury and real estate funds, large versus small caps, and where fund investors are putting and pulling their money.

Jason Stipp: I am Jason Stipp for Morningstar. We are about two-thirds of the way through 2010 now. We thought it would be a good time to take a step back and talk about some of the things that surprised us this year. Here with me to offer her take is Morningstar's Christine Benz. She's director of personal finance for Morningstar.com.

Christine, thanks for joining me.

Christine Benz: Jason, nice to be here.

Stipp: So, 2008, I think surprised a lot of folks in a big way on the downside, 2009 may have surprised some folks with the strength of the recovery.

2010 the market has been much more flattish. It hasn't been that flashy. There have been some moments of up and down, but there were some surprises in 2010. So, I think a good one to start out with is some performance numbers, and one that really jumps at you when you look at the categories, is Treasuries. What are you seeing on Treasuries?

Benz: Well, long Treasuries, the typical long-government fund in our database has gained something like 24% year-to-date. And Jason, coming into this year, there was really a lot of smart money converging around the idea that Treasuries would not be the place to be in the bond market, and long Treasuries in particular, a lot of people thought could be vulnerable if the economy continued to pick up steam, rates went up; they could be just a sitting duck. But Treasuries, long Treasuries have outperformed really every other asset class in our database year-to-date.

And the lesson to me--and I'll say that I was a person saying that you might want to downplay long Treasuries as a component of your portfolio or Treasuries generally--the lesson is that, don't cast your lot, if you're a bond investor, with these all-or-nothing scenarios. You've got to prepare for one or the other scenario to pan out, so while you do want to leave open the room for some sensitivity to an economic recovery, you also do want to have Treasuries or government bonds, which will tend to perform best in a period of weakness like we seem to be in right now.

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