Mutual Funds: Third-Quarter Report Card (Screens)

Published Oct. 9, 2009 at 4:00 a.m.

What a difference a year makes.

Twelve months ago the country’s financial system seemed on the brink of disaster, the stock market was enduring weekly triple-digit swings and the government was resorting to bailout tactics the level of which hadn’t been seen in 80 years.

Now, the economy and the market appear to be on the road to recovery — or at least nearing the on-ramp to one. The S&P 500 is up around 20% year-to-date. Financial firms, at the epicenter of the downturn last year, look to be back on relatively solid footing for now. There are still some poor data, like last week’s jobs report or the supposed fallout in the commercial real estate sector, but for the most part, investors seem to think the worst is behind them.

As SmartMoney.com closes the book on the third quarter, we take a break from screening the thousands of funds and share classes in our database. Instead, we supply you with return numbers on 32 fund categories -- some are doing well and some aren’t. Consider it a report for your portfolio.

If you take a quick look at the table below it may surprise you to see the fund categories that are leading and lagging their peers. The average Latin America, technology, natural resources and midsize-company funds are all up more than 30% since the beginning of 2009. The fact that growth stocks are surging could indicate investors are feeling comfortable enough with the market to start taking on more risk.

Will those categories be in the same spot by Christmas? Maybe, but the momentum appears to be shifting. The last three months, real estate and finance funds have been the top performers, with average returns of 40.4% and 30.7%, respectively. These two categories are probably benefitting from some overselling that happened last year. Investors are now betting they will make a comeback.

We were surprised to see health-care funds bringing up the rear on a year-to-date basis and during the last three months. Heath-care stocks have traditionally done well during downturns because investors won’t scrimp on their medical care. That theory hasn’t played out this time around. Granted, returns of 13.9% (year-to-date) and 12.6% (third quarter) aren’t too shabby. One explanation for the lagging performance: Investors are taking a wait-and-see attitude while Capitol Hill and the White House try to formulate a new health-care bill. That said, a few promising health-care funds could hold up well independently of the legislation.

The Criteria: We picked a dozen Morningstar mutual fund categories for this week’s table. We include the year-to-date return and that of the last three months, too.

Winners and Losers

U.S. Domestic Equity

Fund category	3-Month Return (%)	YTD Return (%)	3-Year Average Annual Return (%)	5-Year Average Annual Return (%)
Technology	23.81	49.84	-0.17	4.25
Natural Resources	27.79	36.93	2.1	8.75
Communications	17.59	34.39	-8.12	-0.14
Midcap Growth	25.32	32.74	-3.08	3.2
Midcap Blend	26.48	32.22	-3.91	2.69
Consumer Discretionary	26.19	32.14	-7.93	-0.78
Small Growth	24.94	30.39	-4.31	1.96
Midcap Value	28.15	29.59	-4.29	1.96
Large Growth	21.15	28.19	-3.37	1.87
Small Value	28.82	28.04	-3.37	1.87
Small Blend	26.86	27.5	-5.41	1.98
Financial	30.67	27.39	-13.84	-4.55
Large Blend	21.95	22.46	-5.23	1.13
Consumer Staples	17.39	20.59	1.19	4.75
Large Value	23.46	19.85	-6.73	0.83
Industrials	30.72	19.41	-6.43	1.9
Real Estate	40.4	19.25	-14.24	-0.2
Health	12.59	13.86	-1.13	3.91
Utilities	14.24	10.88	-1.4	6.45

International

Fund category	3-Month Return (%)	YTD Return (%)	3-Year Average Annual Return (%)	5-Year Average Annual Return (%)
Source: Morningstar ...Note: Data as of Oct. 8, 2009
Latin America	48.04	100.21	11.43	25.86
Diversified Emerging Markets	29.04	65.9	5.72	15.04
Pacific/Asia ex-Japan	20.86	60.37	10.68	15.37
Foreign Small/Mid Growth	26.77	46.66	-2.5	8.33
Europe Stock	32.27	44.03	-3.58	6.97
Foreign Small/Mid Value	26.56	43.09	-2.69	6.65
Global Real Estate	33.02	35.15	-9.29	3.7
Foreign Large Growth	24.23	33.87	-9.29	5.78
Diversified Pacific/Asia	17.99	31.77	-1.04	7.69
World Stock	23.76	30.65	-3.04	5.3
Foreign Large Value	25.53	29.57	-3.52	5.3
Foreign Large Blend	25.33	29.29	-3.77	5.51
Japan Stock	8.43	8.83	-14.19	-3.41

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