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Will Media Stocks Keep These Funds on Top?

Some topnotch managers are betting on the media sector's potential.

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In this year's market rally, one of the most striking developments has been the resurgence of media stocks. Not long ago, most traditional media stocks were being dismissed as dinosaurs amid seismic changes that have decimated the newspaper industry and forced nearly all media firms to adapt to new economic realities. On top of that, the recession has depressed advertising spending, and last year's credit crunch took a toll on media firms with lots of debt on their balance sheets.

The improving economy has brightened the outlook considerably, helping these stocks bounce back with a vengeance. Of Morningstar's 12 stock sectors, media has the best average return for the year to date and the trailing three months as of Nov. 12. The average media stock is up more than 80% for the year, and prominent names such as  Sirius XM Radio (SIRI),  McClatchy (MNI), and  Liberty Interactive (LINTA) have more than tripled in price.

But is this rally sustainable, or will the problems that plagued these stocks before bring them back down to earth? Among those betting that media stocks are for real are a number of topnotch mutual funds with big weightings in the sector. These include some speciality funds such as  Fidelity Select Multimedia (FBMPX), which has more than 80% of its portfolio in the sector, and Rydex Leisure (RYLIX), which has nearly half its portfolio in media stocks. But there are also quite a few diversified funds with large media stakes.

David Kathman does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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