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3 Good Funds Having a Bad Year

Don’t read too much into short-term performance.

3 Good Funds Having a Bad Year

Russel Kinnel: One of the biggest mistakes you can make is buying funds or stocks based on their year-to-date returns. To illustrate, I’ve chosen three Medalists that are in the red for the year to date and also in the bottom quartile. The reason simply is: Luck drives short-term returns. Over the long haul, skill and fees rule the day, but in the short term, it’s really just luck.

3 Good Funds Having a Bad Year

  1. Matthews China MCHFX
  2. Pimco Commodity Real Return Strategy PCRAX
  3. Vanguard High Dividend Yield Index VYM

Matthews China is down 13% because of housing debt issues in China as well as government crackdowns on foreign businesses. But it’s got a lot of strengths here. Andrew Mattock has 30 years of experience, and I like the fund’s focus on steady growers.

Next up, Pimco Commodity Real Return Strategy is down 9%. I own it in my 401(k), but it’s my smallest position because it’s a really volatile fund. This year has been a bad year for just about anything with “real” in its name. Commodities like oil are down sharply. But I like this fund’s strategy. Essentially, they marry commodities with TIPS to give you an all-in-one hedge against inflation.

Finally, Vanguard High Dividend Yield Index is down about 1% for the year. The reason is it owns utilities and financials, which have been hit this year. However, it’s a great fund. I like the fact that they rank stocks by expected yield, but they also cap-weight their holdings so that it reduces risk. The key here is it’s got low costs, and when you invest for income, low costs are really key. We rate the fund Silver, and I own it.

Watch “3 Emerging-Markets Funds to Consider” for more from Russel Kinnel.

The author or authors own shares in one or more securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Russel Kinnel

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Russel Kinnel is director of ratings, manager research, for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He heads the North American Medalist Rating Committee, which vets the Morningstar Medalist Rating™ for funds. He is the editor of Morningstar FundInvestor, a monthly newsletter, and has published a number of prominent studies of the fund industry covering subjects such as manager investment, expenses, and investor returns.

Since joining Morningstar in 1994, Kinnel has analyzed virtually every type of fund and has covered the most prominent fund families, including Fidelity, T. Rowe Price, and Vanguard. He has led studies on the predictive power of fund data and helped develop the Morningstar Rating for funds and the Morningstar Style Box methodology. He was co-author of the company's first book, Morningstar Guide to Mutual Funds: 5-Star Strategies for Success (Wiley, 2003), and was author of the book Fund Spy: Morningstar's Inside Secrets to Selecting Mutual Funds That Outperform, published in 2009.

Kinnel holds a bachelor's degree in economics and journalism from the University of Wisconsin.

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