Funds That Keep the Hits Coming


Every mutual fund informs us that "past performance is not always indicative of future performance," writes Standard & Poor's, which launched the first scorecard that measures the consistency of top mutual-fund performers over three and five consecutive years. The semiannual scorecard also measures the persistence of fund performance for the one-, three-, and five-year nonoverlapping periods.

As of May 31, only 10.7% of large-cap funds, 9.2% of mid-cap funds, and 11.5% of small-cap funds maintained a top-quartile ranking over three consecutive years. The scorecard also show that 28.9% of large-cap, 26.4% of mid-cap, and 27.9% of small-cap funds maintained a top-half ranking over the same time period.

In addition, the scorecard tracks cumulative performance over two nonoverlapping three-year periods. The average top-quartile repeat performance was 27.7%, and the average top-half repeat performance was 47.9%.

"VERY DIFFICULT." Not surprisingly, Standard & Poor's (which, like BusinessWeek, is a unit of The McGraw-Hill Companies) determined that fourth-quartile funds had a higher probability of disappearing. Over the three-year time horizon, 33.5% of large-cap, 32.3% of mid-cap, and 26.9% of small-cap fourth-quartile funds disappeared due to mergers or liquidations. A large percentage of the fourth-quartile funds that survived still remained in the bottom half.

"Our research suggests that maintaining a top-quartile position over longer horizons is very difficult," says Srikant Dash, index strategist at S&P. "Only 3% of small-cap funds maintained a top-quartile ranking over two nonoverlapping five-year periods, while there were no such funds in the large- and mid-cap category. Repeat top-half performers totaled 18.2%, 12.9%, and 17.2% for large-cap, mid-cap and small-cap funds, respectively."

"Whether we viewed consecutive 12-month performance or nonoverlapping cumulative periods, the characteristics of top-half winners were similar," says Rosanne Pane, mutual fund strategist at S&P. "Management experience counts, expenses matter, and protecting the downside helps."

MORE VALUE WINNERS. Pane says consistent top-half performers had longer manager tenures and lower expenses relative to their peers. "In addition, consistent winners also minimized or avoided losses during the bear market relative to their peers," she says.

Over the past five years, the majority of top-half performers were value funds. Hotchkis & Wiley funds led the top 10 lists for large-cap, mid-cap, and small-cap funds. Finding top-performing small-cap funds that are still open to investors is difficult. Six of the top 10 small-cap funds are closed, says S&P.

S&P believes that determining excellence in mutual funds depends on more than last quarter's or last year's track record. Investors should focus on the consistency of long-term fund performance in both bull and bear markets, consider the expertise and experience of the fund-management team, and always review the level of the fund's expense ratio relative to peers.

Here are the top 10 funds within each equity-fund category, ranked by five-year total annualized returns, that showed performance persistence over five consecutive 12-month periods.

Large-Cap

Fund Name

Ticker

Five-Year Return (Annualized %)

Fund Status for New Investors

HW Large Cap Value/I

HWLIX

13.9

Closed

Memorial Value Eq/Instl

MVEIX

10.8

Open

Am Beacon LCVl/AMR

AAGAX

9.4

Closed

Target:Large Cap Value

TALVX

9.3

Open

Putnam New Value/A

PANVX

8.9

Open

Vantagepoint Equity Inc

VPEIX

8.6

Open

Van Kampen Comstock/A

ACSTX

8.2

Open

Amer Cnt Large Co Vl/Inv

ALVIX

8.1

Closed

Gabelli Equity Inc/AAA

GABEX

7.6

Open

OppenQst:Cap Val/A

QCVAX

7.5

Open

S&P 500 Index

-1.9

Mid-Cap

Fund Name

Ticker

Five-Year Return (Annualized %)

Fund Status for New Investors

HW Mid-Cap Value/I

HWMIX

20.3

Open

JPMorgan Mid Cap Value/I

FLMVX

17.6

Closed

Goldman Sachs Md Cp Val/A

GCMAX

16.1

Closed

T Rowe Price Mid-Cp Val

TRMCX

15.6

Closed

Security:Mid Cap Value/A

SEVAX

15.4

Open

Janus Mid Cap Value/Inv

JMCVX

15.2

Open

Marshall:Mid Cap Val/Inv

MRVEX

14.8

Open

WF Adv Mid Cap Discpl/Inv

SMCDX

13.3

Open

Fidelity Value

FDVLX

12.7

Open

MainStay Mid Cap Opport/I

MMOIX

12.6

Open

S&P Midcap Index

8.3

Small-Cap

Fund Name

Ticker

Five-Year Return (Annualized %)

Fund Status for New Investors

HW Small Cap Value/I

HWSIX

28.4

Closed

Bridgeway:Ultra Sm Co

BRUSX

27.0

Closed

RS:Partners

RSPFX

25.3

Closed

n/i numeric inv Sm Cap Vl

NISVX

24.8

Closed

Am Beacon Sm Cp Vl/AMR

AASVX

22.2

Closed

Pacific Cap Small Cap/Y

PSCYX

20.9

Open

Franklin MicroCap Value

FRMCX

20.5

Open

Berwyn Fund

BERWX

19.9

Open

Munder Small Cap Val/Y

MCVYX

19.7

Open

Amer Cnt Sm Cap Val/Inv

ASVIX

19.5

Closed

S&P SmallCap 600 Index

11.1

From Standard & Poor's


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