Funds That Made the Most of the Bear and Bull
What our upside-downside capture ratios reveal.
One smart way to judge a fund is to measure how it performs in both bull and bear markets. If a fund is fortunate, it will beat its benchmark in one market or the other; most funds don't achieve either feat. But a few have managed to outpace their benchmarks in both rallies and sell-offs.
No two bear or bull markets are alike. But funds that have succeeded in both environments stand a better chance than most of exploiting a bull's charge and limiting a bear's bite in the future. To identify such funds, I measured performance against market ups and downs during the past 10 years. I tested only no-load funds that invest at least 95% of their assets in stocks. That restriction makes it likely that stock selection--rather than a big position in cash or bonds--aided results during the past decade's two bear markets. I've grouped the best of these funds into three categories: Bear-Market Beauties, Rally Champs, and the Best of Both Worlds.
Leading this pack is CGM Focus (CGMFX), which lost only half as much as Standard & Poor's 500-stock index during the 2000-02 and 2007-09 bear markets. I bet you didn't see that coming, as the fund has been a dog of late. Yet, CGM Focus shone in the decade's first bear market, during which it gained 76%, clobbering the index by 123 percentage points. During the more recent bear market, CGM Focus fell 58%, losing 3 points more than the index. Over the past 10 years through May 7, the fund returned 17% annualized.
Russel Kinnel does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.