Our Mutual Fund Report Card for 2008

This is the week we traditionally devote to taking one last look at the year that just passed. In this case, we are quite happy to be finally saying farewell to 2008. It will go down as a historic year in which the world's financial systems teetered on the brink of disaster and millions of individual investors lost sizable chunks of their nest eggs. We can't say good riddance fast enough.

We're going to dispense with 2008 in two ways. First, below we have listed the returns of 36 key equity fund categories. This is an easy way to create a report card for your portfolio. Later in the week we'll announce the funds that made our "Best of 2008" list.

The most startling number of 2008 for mutual-fund investors is this one: 37.3. That's the percentage loss the average S&P 500 index fund posted last year, according to Lipper. That means even the most conservative equity investors got hit hard. No doubt, whether you're able to give your portfolio an A or an F will depend on where your individual return is in relation to that figure. Another smart move is to evaluate your small-, mid- and large-cap funds against the category averages. This is a true apples-to-apples comparison.

There was really no place investors could hide to avoid the calamity. The average domestic equity fund decreased 37.6% in 2008. International ones dropped 45.8%. Sector funds lost 39.7%, says Lipper. The only way to stem some of the bleeding was to move money into fixed-income funds, which managed to eke out slight gains.

Among the mainstream domestic fund categories -- large-, mid-, small- and multicap -- the worst category was midcap growth funds. It lost 44.5% on average. There might be a simple explanation to that poor performance. Funds that invested in large-cap growth companies could've found themselves reclassified as midcaps as their holdings lost value.

Small-cap stock funds did the best among that bunch. We kept a close eye on this category all year. Numerous studies show that small-cap stocks tend to do well coming out of downturns in the economy because they get access to capital, become M&A targets or investors become more comfortable investing in riskier fare when the dust settles on tough times. Small-cap value funds -- see our story on them here  -- lost 33.4% in 2008.

Value funds trumped growth funds, regardless of market-capitalization strategy. And just one diversified domestic equity fund, Forester Value (FVALX), a large-cap value fund, managed to post a positive return, gaining 0.39% on the year.

Like small caps, health care is another part of the investing world that tends to do well during recessionary times since consumers typically won't skimp on doctor visits. The average health-care fund slid 23% last year, the best tally among 20 sector categories tracked by Lipper. Global-natural-resources offerings took it on the chin. After oil skyrocketed in the first half of '08, the per-barrel price fell over $100 by the time Christmas rolled around. The funds that concentrated on that industry lost 50.5%.

Some of the biggest losses were chalked up in overseas funds. China funds gained more than 50% in 2006 and 2007, making them the envy of every investor who didn't get in early. But as that country's economy has slowed and corporate profits are trimmed, the funds that follow China had their comeuppance. The average China fund lost 52.7%. Latin America funds fared even worse. The big, liquid companies in that region are closely tied to the energy sector. When it tanked, these funds did, too. The average Latin America fund dropped 57.3%.

We hope we won't be talking about the same type of numbers this time next year. Look for investors to get some sense of clarity once the first quarter passes. Also look for a decent second half that will put the stock market in positive territory for the year. To take advantage of that possibility stay diversified by buying U.S. large-cap companies and maybe slightly upping exposure to small caps and health care.