By SARAH MORGAN
A broad stock market index> would have delivered a perfectly good year in 2010. The S&P 500 rose 12%, and after a 27% gain in 2009, stocks are just 13% off its 2007 peak. Not bad. But what about those investors who made big bets on a particular sector, or country? How did wind-energy optimists or gold-bug pessimists fare? Earlier this week, SmartMoney.com columnist Jack Hough highlighted the best and worst stocks of the year (guess which list Crocs (CROX)
Best: Dynamic Gold and Precious Metals, up 66.92%
The average small-cap growth fund was up 27% this year. The average gold fund: 39%. The top performer among all equity mutual funds over the last 12 months? This little small-cap gold fund. Launched fewer than two years ago by ex-mining industry engineer Robert Cohen, Dynamic Gold and Precious Metals holds shares in just 38 companies with an average a market cap of just $1.5 billion, smaller than the average $9.5 billion market cap of precious metals funds. Cohen has made a big investment in Canadian gold miner Osisko Mining Corporation (OSK),
Worst: Z Seven, down 73.2%
Investors in this year's worst-performing fund are now getting what's left of their money back: management has decided to liquidate the fund as of December 29. The Z Seven fund's stock-picking system was designed to incorporate lessons learned in the 1973-74 bear market, and the international stock fund did outperform a world stock index during the downturn in late 2008 and early 2009, but it quickly fell behind in the recovery. Anyone who put $10,000 in this fund at the beginning of this year would have lost more than $7,000 in the last 12 months. So what went wrong? With just 14 stocks in its portfolio at the end of the third quarter, the fund may have suffered from bad timing some of its top holdings, including British investment management company Rathbone Brothers PLC, PetMed Express, and British consulting firm RPS Group suffered steep losses in the spring and summer. While shares of those companies have since recovered, this fund's shareholders never did.
Bond Mutual Fund
Best: JHFunds2 High Income, up 24.89%
It's been a great year for bonds or at least it was until November, when a sell-off in municipal bonds in particular pushed interest rates up and prices down. The year's top performer is a $571 million fund that steered clear of the muni mess, with at least 80% of assets in high-yield securities, including corporate bonds and mortgage-backed securities, generally with an average duration of between 3 and 7 years. After two sub-par years, this year it not only beat the Barclays Global Aggregate bond index, which rose just 3.72%, it beat the average high-yield bond fund (up 13.8%), and the S&P 500. That return rewarded investors for taking on more credit risk: 58% of the issues in the portfolio are rated below-B, compared to just 17% for the average high-yield bond fund.
Worst: AMF Intermediate Mortgage, down 5.33%
Eight of the 10 worst performing bond funds this year focused on municipal bonds. The biggest loser? A $26 million mortgage bond fund, which lost money for the third year in a row. Its performance was roughly on par with the Barclays U.S. Aggregate bond index until early 2008, when it took a steep dive. It lost 35% that year, and another 15.7% last year. In which case, the 5.3% loss this year is an improvement? Not compared to the average short-term bond fund, which gained 3.7% this year, but the average short-term bond fund holds only 10% of its assets in mortgage CMOs, compared to this fund's 45%. The fund's management did not respond to requests for comment.
Best: Market Vectors Jr Gold Miners (GDXJ), up 61.62%
It was a strong year for equities, and 27 equity ETFs returned more than 30%, says Tom Graves, an equity analyst at Standard & Poor's. But just as for mutual funds, the absolute best place to be was the intersection between small-cap stocks and gold-mining stocks. The year's top-performing ETF tracks the Market Vectors Junior Gold Miners Index, which includes miners with a market cap between about $150 million and $5 billion. The firm's older Gold Miners ETF, which tracks an index of bigger miners, also had a strong year but its 29% gain couldn't touch the Junior ETF's huge rise. "You tend to have more leverage to rising [gold] prices in the small miners," says Alec Young, a Standard & Poor's international equity strategist.
Worst: PowerShares Global Wind Energy Portfolio (PWND), down 36.7%
At the opposite pole from small gold mining companies lies European alternative energy firms. Many alternative energy companies draw much of their business from Europe, say Standard & Poor's analysts, and key countries, including Spain, cut back on subsidy programs this year that had previously supported demand. And with Spain currently running a budget deficit worth 11% of GDP, more than three times the European Union limit, those subsidies may not be coming back any time soon. Only 9 equity ETFs were down more than 10% for the year, and 7 of them focus on solar power, wind power, or alternative energy, Graves says. The worst, this PowerShares wind energy ETF, tracks the NASDAQ OMX Clean Edge Global Wind Energy Index, which has as its top holding Iberdrola Renovables, a Valencia, Spain-based wind energy company that lost 17% this year.
Best: iShares MSCI All Peru (EPU), up 53.39%
With just 29 million citizens, Peru is a small country with a small economy, so this Peru ETF is pretty concentrated 54% of assets are in the fund's top five holdings, another 21 companies round out the rest of the portfolio. This year, that concentration paid off. Three of those top five holdings are mining companies, including Hochschild Mining (HOC),
Worst: iShares MSCI Spain (EWP), down 23.23%
Think 10% unemployment is bad? Try Spain's 20%. Spain is "kind of in the eye of the storm in terms of peripheral European sovereign risk," Young says. "There's a lot of concern about the health of Spanish banks and whether they've overexposed themselves to the real estate market." And this index-based ETF is heavily exposed to Spain's financial sector, with 43% of its portfolio in financial services companies, compared to 31% for iShares' Italy ETF (EWI)
Real Estate Market
Best: Union County, North Carolina, up 30.3%
Many parts of the Southeast have held up relatively well through this downturn, says Ryan Tomazin, the CEO of Integrated Asset Services, which tracks home price data. With the exception of Florida, which still suffers from some of the same oversupply of homes that's hurt prices in the Southwest, the region didn't see quite as steep a boom-and-bust cycle as some other parts of the country, Tomazin says. There is some new building happening now, but the county certainly wasn't overdeveloped before the downturn, and there are some higher-priced homes in the area that "provide a store of value" for surrounding communities, says Daniel Fisher, a local realtor with ZipRealty.
Worst: Lake County, Indiana, down 26.5%
Falling home prices in the Midwest are a sign of the overall economy's continuing weakness, because the region has historically relied on manufacturing and agricultural jobs, Tomazin says. Lake County is a small community in the Chicago metro area, and outlying industrial parks in many metropolitan areas continue to struggle in a still-sluggish economy, he says. Nationally, home prices could still "step back" next year, because of the overhang of bank-owned properties that need to be sold but the worst news is likely to still be concentrated in resort areas in Florida and the Southwest, where prices likely won't pick up until 2012, he says.