The 10 Biggest Winners and Losers of 2007

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  +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  +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  +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 , 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.

ProFunds UltraEmerging Markets (UUPIX) +70%
If leveraged funds like this one look like a brilliant idea, stay tuned for the biggest losers.

Guinness Atkinson China & Hong Kong (ICHKX) +65%
Experienced management and a decent strategy make this a decent fund, but once again, China's a tad pricey.

Woe Is Them: The 10 Biggest Losers of 2007

ProFunds UltraShort Emkt Inv (UVPIX) -61%
Think you can time the markets? ProFunds is for you. I hope they got a Thank You card from Regions Morgan Keegan.

 Regions Morgan Keegan Select High Income   -60%
It's no surprise that this fund would have a down year when mortgages got pummeled. But losing 60% is absolutely stunning. They owned subprime mortgages but not exclusively. Yet because it was a smallish fund, redemptions made a bad situation much worse and management had to sell at desperation prices. Even so, I'm amazed it lost so much. They do forensic accounting in corporate bankruptcies and I'd love to see the same thing to here to reveal how a bid situation turned into a debacle.

Direxion Emerging Markets Bear 2x  -53%
What goes up�

 Regions Morgan Keegan Select Intermediate Bond  -50%
Yuck. Once more it's a case of subprime and redemptions leading to a brutal loss.

ProFunds Banks UltraSector (BKPIX) -40%
Unlike the two losers above this one is leveraged long. It was a tough year for financials.

American Heritage Growth  -39%
This is the worst mutual fund in existence. The fund's current expense ratio is 32.45%. That means crummy management had to subtract only 800 basis points in value to get the fund to a 40% loss.

 Fidelity Select Home Finance (FSVLX) -38%
This fund's niche is small banks and other lenders. The last time those stocks got hit this fund had a huge run and was the best performer for much of the 1990s. Of course, both this year's loss and those past big returns were the reflection of the fund's small niche--not so much a reflection of manager skill.

Direxion Nasdaq-100 Bear 2.5x  -36%
Hey cool, this fund has more leverage than the Direxion Emerging Markets Bear 2x that lost 53%.

ProFunds Real Estate UltraSector Inv (REPIX) -31%

It wasn't that long ago that real-estate seemed to many like the surest bet of all. Of course that's usually the sign of a top. Any time you have two shows dedicated to flipping houses, you know real-estate is about to implode.

ProFunds UltraSector Financials (FNPIX) -30%
Financials + leverage = big losses.