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Fund Spy

Three Funds That Are More Jekyll Than Hyde

Wild category ranking changes belie the consistency of these funds.

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For a handful of funds so far this year, less has been more. They offer a lesson on the importance of considering absolute as well as relative returns.

Three diversified domestic-equity funds have gone from the bottom 20th of their respective categories in 2009 to the top 5% so far in 2010 by actually doing worse in absolute terms.  Pioneer Equity Income (PEQIX),  Sequoia (SEQUX), and  Franklin Rising Dividends (FRDPX) each posted double-digit gains last year--returns in excess of their since-inception averages and the historical average of the overall domestic-stock market. It wasn't enough to earn them any love in their respective categories, though. Equity Income trailed 98% of large-value funds while Sequoia and Rising Dividends lagged more than 95% of large-blend funds.

So far this year, Equity Income's and Sequoia's absolute returns are a little more than half of what they posted in 2009, and Rising Dividend's 5.9% gain is far below its 17% advance last year. Yet, their category rankings are now better than more than 96% of their rivals.

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