6 Rated Funds With Extreme Performance in 2013

Morningstar Analyst Ratings take the long view. We’re looking at a fund’s long-term prospects for risk-adjusted returns relative to its category and benchmark. When performance is extreme, however, fear and greed can overwhelm investors and you need to have perspective in the face of extreme returns. With that in mind, I thought I’d take a look at some of the highest and lowest year-to-date returns in the Morningstar 500.

Top Three
We rate  Primecap Odyssey Aggressive Growth (POAGX) Gold because it boasts an excellent team of growth investors, a good strategy, and low costs. This year a number of health-care and biotech stocks have been a boon. While this is a great long-term holding, be ready for some rough patches. This year it is up 42.7%--topping all of its peers. However, the last time it topped its peers was 2006, and the following year it lagged by a massive 1,500 basis points. As with the other two funds on this list, a sell-off in health-care names would really sting.

 T. Rowe Price Health Sciences (PRHSX) is having a great year, but we rate the fund Neutral because manager Kris Jenner bolted and took two analysts with him. That was a real setback for the fund and it's now a rebuilding effort.

 Fidelity Select Health Care (FSPHX) is up 38.2%, topping most of its health-care peers. We tend to rate Fidelity Select funds either Neutral or Bronze because they are cheap and have some good analyst support but suffer from too much manager turnover. Ed Yoon has been on the fund since 2008, and his tenure and strong record over five years tips this fund into Bronze. Fidelity’s sector fund managers can stay at their funds rather than become managers of big diversified funds. Yoon’s tenure suggests he wants to make a career out of it, so we rate it Bronze.

Bottom Three
Precious metals and emerging markets have been about the worst performers for the year. In particular, gold and India have really gotten hammered. In both cases, it’s due in part to signs that the Fed will taper off its bond purchases, making for a stronger dollar and higher interest rates. The two funds with the biggest losses were precious-metals funds followed by an India fund. Although their categories have been awful, the bottom three funds have actually had respectable performance relative to their peers. Two have outperformed, and one is only a bit behind the average.

Our biggest loser is  Oppenheimer Gold & Special Minerals (OPGSX), which is down a nasty 43.5% for the year to date. We rate it Silver because of its deft management among big and small miners. However, it’s aggressive enough that it tends to outperform in rallies and get punished in down markets. Thus, its performance is not out of character this year, and we still have faith.

 Vanguard Precious Metals and Mining (VGPMX) follows a more diffuse strategy that gets it well beyond precious metals. Thus, its 34.3% loss actually tops its category. This makes it a more broad inflation hedge than most of the competition, but it also means it’s not going to make you a mint when gold rallies. The fund invests in other commodity producers, including diamond, potash, and copper miners. That added level of diversification moderates the extremes of dedicated gold funds, although obviously it still can get hit. All that and the fund’s low costs earn it a Gold rating.

 Matthews India (MINDX) is down 11.8% this year; that’s in line with the typical India fund. We’re big fans of Matthews because of its skill and depth at covering Asia. Thus, the fund is rated Silver. That said, India is going through a difficult time as structural flaws have hammered the economy and the markets. India has a new central bank chief who hopes to restore confidence, but it looks like a tough job. In short, don't make this a big holding or expect a smooth ride.

 

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