Mutual Fund Site

With an eye out for the best equity mutual funds on the market, it makes sense that we might want to look at past performance as a way to not only measure up our 2011 Watch List, but to see whether what we say here at the Site really holds any value for our readers. But historic rates of returns are not faultless when measuring mutual funds. For instance, should you search our longer term top-performers when we measure our financial health against short-term objectives? At the same time, do short-term returns tell us much about the true value any given mutual fund can offer our investment portfolio?

With the current economic and market climate, it makes sense for investors to have questions like these – long-term or short-term performance to help determine the strength of an investment fund. So we looked at several performance measures and came up with some interesting findings. Here, we will look at the YTD, 1-year trailing, 1-year total, 3-year total and 5-year total returns. We will start with the 5-year total return.

Our 5-Year Total Return Champ – April 2011

Well, no single equity fund kicked-butt across the board. However, the Fidelity Small Cap Discovery Fund (FSCRX), has been one of the top performers with leading returns of 5-year return of 8.84%, a 3-year return of 16.98%, a 1-year return of 23.43%. Its YTD number of 8.3% does not rank in the Top 5. However, no other fund covered by the Mutual Fund Site meets this kind of criteria.

This fund scores in the Top 5 in the following measurements:

YTD – no

1-Year – yes

3-Year – yes

5-Year – yes

In 4 areas, it ranks in the Top 5. If we had a fancy star-rating system, it would score 3/4 stars, the highest ranking among all of the funds we cover at the Mutual Fund Site, even though it didn’t stack up in the YTD area, the shortest-term measurement.

Here is the 5-year chart to April 15, 2011:

Not the prettiest for those first few years, but this long-term approach highlights the importance of a buy and hold strategy. It also shows that, as the 9th best performing mutual fund covered by us, if you had looked at its 3-year track record in 2009, you probably would have passed.

It is also worth noting here that not all of our top performing funds have 5-year track records. So, let’s look at the 3-year returns, see which funds have done exceptionally well.

On To The 3-Year Track Record…

Not much of a surprise here. The fund with the best 3-year total return remains the Oceanstone Fund (OSFDX), rewarding investors with a heart-blasting 72.37%. The next-closest performer on our exclusive list is the Fidelity Small Cap (see above) with its 16.98% for 3 years, which brings us back to April 2008.

Where Oceanstone fails us, though is in its inability to make the Top 5 for its 1-year trailing return. At 22.03%, it did not make our Top 5 list, even though its YTD number of 10.92% does. This is how the Oceanstone Fund stacks up when we look at 3 measurement areas:

YTD – yes

1-Year – no

3-Year – yes

So, we give it 2/3.

The Fidelity Small Cap Discovery would also score 2/3, but its score sheet would look like this:

YTD – no

1-Year – yes

2-Year – yes

If we place greater weight on mid-term performance measures, the Fidelity Small Cap Discovery fund would be the clear choice over the Oceanstone Fund, even though they both score in only 2 of 3 measurements here. But does that make the Oceanstone less “worthy?”

We think it is well worth looking at. Take a look at its 3-year chart:

(oh, great, it looks like our chart doesn’t work…)

Moving along, the 3-year performer that scores a 3/3 on our sheet is the Marshall Small Cap Growth Fund (MRSCX). Where this fund falls flat is in the 5-year range with its return of 7.86% (still good, but not good enough to get us to the Top 5). Marshall’s YTD return is 10.47%, its 1-year trailing return is 24.46% and its 3-year trailing return is 13.21%. Again, it scores Top 5 marks in its YTD, 1-year and 3-year measurements. Here is the Marshall’s 3-year chart:

Yes, this chart is something of a piece of beauty. Interesting as well that it is a small cap mutual fund, just as the Fidelity fund is. Could this be a theme for both long-term and mid-term investments?

Our 1-Year Trailing Return Mutual Fund Leaders

On a 1-year trailing return basis, it may not make great sense to measure 1-year and YTD, but we will do it anyway. When we do this, we have 2 equity funds that make the grade. The first is the Marshall fund (see above) and the second is the BlackRock All Cap Energy and Resources (BACAX). (Remember, the Fidelity Small Cap Discovery let us down on the YTD number of 8.3%). For the BlackRock fund, though, it returned 24.14% on a 1-year trailing basis and 11.7% on a YTD basis. Here is its 1-year return chart:

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Another pretty chart, no? Despite a bumpy road out of the gate, it pulled away from the S&P 500 midway through September 2010. This is not a Watch List 2011 mutual fund, though…

Our YTD Top 5 Mutual Funds

The Top 5 on a YTD basis consists of three names mentioned here (Oceanstone, Marshall Small Cap and the BlackRock All Cap Energy & Resources) as well as two that show up nowhere else – Berwyn Income Fund (BERWX) at 14.36% YTD and the Sequoia Fund (SEQUX) at 10.44%. All five funds are strong performers with none of them register a negative return in any of the metrics measured here, except the BlackRock All Cap with its -1.4% 3-year trailing return.

So… Short-term or Long-term???

This where we point out that short-term performance is definitely too short of a performance period. Imagine picking Berwyn Income right now? It may be all fine and great if the economy tanks and rates get lower, which is possible but definitely still a matter of huge debate.

At the same time, picking an equity mutual fund based on 5-year performance is too long. Look at the Fidelity Small Cap Discovery fund… for the first few years, most investors would have pulled or at least consider pulling out of the fund. It’s not a bad fund, but that is an easy statement for us to make in hindsight… but in 2009, it would have been unlikely that we would support that investment. And we would have been wrong.