When the last seconds of 2009> ticked off clocks across the country, the books closed on one of the worst decades for investing in stocks. People who invested $10,000 in the S&P 500 10 years ago would now be sitting on, well, around $10,000. That s not an exciting prospect for investors, especially those nearing retirement. The culprits were bookend downturns that negated solid years in between.
There is some solace for investors as a new decade begins: The S&P 500 gained more than 26% in 2009. As our columnist James Stewart recently wrote: My first prediction for 2010: The new decade will be better for stock investors.
At the close of every year, SmartMoney.com puts its fund screen column on hold to bestow some accolades on the offerings that performed well over the previous 12-month period. We highlight funds in key categories that had above-average performance during that time. But returns aren t the only metric we look at. We aren t out to reward a fund for one good year only to see it flame out. We also look at longer-term performance, fees, expenses, manager tenure and we listen to what advisors say during interviews we conduct throughout the year. You may not agree with every choice on our list, so leave a comment on the funds you think deserve attention.
When we published our Best of 2008 list, investors were still in shock over such a dismal year. But 2009 had its share of surprises, too. The government continued to prop up the financial system and inject stimulus money into the economy. Unemployment jumped, growth slowed and the housing market limped along. Then there was the demise of the nation s car industry. A nasty debate over health care showed how divisive the political climate is on Capitol Hill.
Regardless, the stock market started to recover in March and, despite predictions to the contrary, continued to do so through the Christmas holiday. That rally was typified by investors becoming comfortable with taking on risk once again. Technology, energy, telecom and mid- and small-cap fund categories led the way on the domestic front. Outside the U.S., Latin America and broadly-focused emerging market funds did well. In addition, growth trumped value.
We were more optimistic than most people, says Jeff Layman, chief investment officer of BKD Wealth Advisors in Springfield. Mo., who says he did well moving into international stocks in 2009. There were some defining moments that prompted the rebound. Did that mean everything was on a path to growth? Certainly not. We have a market that reflects an economy under repair.
Looking forward, the picture for 2010 isn t exactly clear. Goldman Sachs (GS)
Picking our Best of 2009 list was more difficult this year than in the past. Last year, it was easy to see managers who had smartly avoided some pitfalls. In a rally that seemingly lifted all boats, though, many funds and their managers looked good. Because of that, we shied away from naming a fund manager of the year candidate. But if we were pressed on the issue, we think the folks behind the Fairholme and Yacktman funds certainly had good years.
Morningstar recently picked Fairholme s Bruce Berkowitz as its Domestic Equity Fund Manager of the Year. We ve been following this fund for four years, so we were happy to see it receive some well-earned recognition. The fund used to be a relative unknown. But Berkowitz has deftly steered this offering to an average annual 13.9% gain in the last decade. It currently has $10.6 billion in assets.
Berkowitz is a Warren Buffett disciple. He buys well-run businesses that are trading on the cheap and then he waits until the market rediscovers the stocks. At first glance, Berkowitz runs a concentrated portfolio of just under 30 stocks and bonds. But his longtime holding in Buffett s Berkshire Hathaway gives him exposure to a wide swath of industries. Current top holdings include Pfizer, Sears and St. Joe. The fund is in the top spot of Morningstar s large blend category over the trailing three-, five- and 10-year time periods. It gained 39% last year.
Midcap Stock Fund
This offering, now part of the Tocqueville funds family, tends to fly under the radar. The $700 million fund gained almost 55% last year thanks to stocks like Flextronics (FLEX)
Small-Cap Stock Fund
T. Rowe Price New Horizons (PRNHX)
After 22 years at the helm, manager Jack Laporte will hand over the reins in 2010. He s going out on a high note. His fund returned almost 44% last year, and it is in the top quartile of its Morningstar category over the trailing 10-year period. The small-cap universe can be a risky one, so Laporte keeps a diversified portfolio of almost 250 stocks. The names are spread across key industries like health care, consumer and business services and software. He then holds on to the names. The fund has a low 26% turnover rate.
Multi Cap Stock Fund
The namesake father-and-son team behind this fund has been quietly posting consistent performance from their headquarters in Austin, Texas. Last year was a banner year for them. The fund gained 59% thanks to consumer-focused stocks like Coca Cola (KO)
The fund managers typically like companies with strong cash flows and low debt that are trading at a discount to the broad market. They aren t afraid to take outsized positions. The fund has just 40 stocks in its portfolio. That may scare off some conservative investors. The Yacktmans, though, have handled the risk. The fund is in the top 5% of its Lipper category over the trailing one-, three-, five- and 10-year time periods.
Janus Overseas (JAOSX)
Manager Brent Lynn, who has run this fund since 2001, favors fast-growing companies. In 2009, that meant companies in emerging markets like Brazil, India and Latin America. That helped him post a whopping 78% return. But Lynn isn t a one-hit wonder. Over the last decade, the fund has gained an average annual 6.5%, putting it in the top 2% of Morningstar s foreign large-cap-growth category. Turning in a similar performance in 2010 may depend on holdings closer to home. Morningstar analyst Andrew Gogerty recently wrote that Lynn is buying beaten-down U.S. names with global exposure. Ford (F),
Comeback of the Year
Dodge & Cox Stock (DODGX)
At one point, this fund s stellar performance made it one of the darlings of the industry -- and its coffers swelled as a result. But a 43% slide in 2008 had many questioning whether the fund had lost its way. Indeed, it scooped up some financial names just as the downturn in that industry worsened. Assets now sit at around the $40 billion mark.
Turning around a fund this size is much like stopping the proverbial ocean liner. No doubt, though, some of the skeptics have been quieted by a 31% gain in 2009 that beat the S&P 500 index by five percentage points. The fund currently holds top positions in Hewlett Packard, General Electric, Wells Fargo and Merck. Health-care stocks like Merck should be a big theme for the fund in 2010. Over 22% of its assets are in this industry.
Newcomer of the Year
Vanguard Explorer Value (VEXPX)
We ve watched the last few years as Vanguard, the index fund shop, smartly moved into the ETF business with novel offerings based on the company s existing product line. The company has a knack for thoroughly thinking through what it launches instead of throwing anything onto the market to attract assets.
So when a press release found its way into our inbox announcing a new Vanguard active equity fund we took notice. Much of the company s focus the last few years has been on the ETF business. Indeed, Vanguard says it hasn t launched an actively-managed fund since Primecap Core (VPCCX)
This new fund should complement Vanguard Explorer. A value-oriented approach will be executed by three outside advisory firms. Two of the firms, Cardinal Capital Management and Sterling Capital Management, are working with the company for the first time. Vanguard says Cardinal will focus on using a cash-flow investment strategy while Sterling will look for good companies selling at large discounts.
Still, you won t see this new fund on our screens when it officially launches in 2010. It has a $10,000 minimum investment, which is double the amount we usually prefer.