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Which Fund Families Have Done Best in the Rally?

Many of 2008's best performers have been left in the dust

The rally that began on March 10 saw the major stock market indexes gain 30% or more in just three months, before pulling back a bit over the past couple of weeks. Those impressive gains haven't affected all parts of the market equally, however. In general, the stocks that got hit hardest in last fall's market rout, especially financials and commodities, have benefited the most, while "safe" sectors such as health care and consumer staples have been lagging the market during the rally. As we've pointed out recently, mutual funds that are heavy in hot areas such as commodities, emerging markets, and certain financial and technology stocks have generally outperformed their peers significantly over the past few months, after getting hammered in 2008. This is part of a broader trend in which risky assets in general have jumped in price, leaving less-risky assets behind.

We thought that it would be interesting to take a broader view and look at which fund families have collectively performed best and worst over this period. To do this, we took the 50 biggest stock-fund families (that is, those with the most assets in stock funds) and calculated asset-weighted average percentile rankings for each family's stock funds over various periods. Smaller numbers are better here, with anything under 50 being better than the median, while higher numbers are worse. We also calculated each family's average allocation to financial stocks, the best-performing Morningstar sector over the past three months, and health care, the worst-performing sector over that period.

The first table shows the 10 families (out of that group of 50) whose stock funds have the best average percentile ranking over the past three months as of June 23, roughly corresponding to the recent rally. For comparison, we also show the average percentile ranking for each family's stock funds in 2008. The last two columns show each family's average allocation to financials, with its ranking out of the 50 families in parentheses, and each family's average allocation to health care, with its ranking in parentheses.

 Best-Performing Stock Fund Families (Past Three Months)

Family Name

Avg Rank Three Months

Avg Rank 2008 Avg Financial % (Rank) Avg Health Care % (Rank)
Dodge & Cox
87 13.99 (28) 19.18 (4)
Davis Funds
73 27.03 (1) 6.42 (48)
50 25.87 (2) 5.81 (49)
55 11.98 (43) 10.74 (38)
60 13.27 (32) 12.75 (21)
47 13.65 (30) 18.34 (5)
T. Rowe Price
49 13.14 (35) 13.81 (16)
41 12.91 (37) 6.92 (46)
34 14.22 (25) 6.69 (47)
57 9.01 (48) 19.44 (3)
As of 6-23-2009.

The top three families on this list--Dodge & Cox, Davis, and DFA--are all known for their low costs and distinctive investment styles. Davis and DFA have the heaviest weightings in financial stocks among our 50 families and among the lowest weightings in health-care stocks. Their big financial weightings have undoubtedly helped them in the recent rally, and their low health-care weightings probably didn't hurt.

That's clearly not the whole story, though. Dodge & Cox has the best three-month record of all, but its financial weighting isn't particularly high and it is quite heavy in health care. Just looking at these two sectors isn't very helpful for the other seven families on this list, either. Most of the seven actually have relatively low financial weightings in comparison to the group, and their health-care weightings are all over the map, with some among the highest in the group and some among the lowest. Apart from Davis and DFA, the explanation for most of these families' good relative performance lately can't be easily reduced to sector weightings.

Also, it's interesting to note that the two best-performing families over the past three months, Dodge & Cox and Davis, had noticeably poor average rankings in 2008. That's not surprising, given how many of the drivers of the recent rally were among the worst performers last year, as noted above. However, after those two, there's not much pattern discernible, with most of the other families on this list having middling 2008 results. Artisan and Royce are the only families that have looked relatively good in both periods.

The table below shows the 10 families (again from our group of 50) with the worst average percentile ranking over the past three months, including the same information as in the first table.

Worst-Performing Stock Fund Families (Past Three Months)

Family Name

Avg RankThree Months

Avg Rank 2008 Avg Financial  (Rank) Avg Health Care % (Rank)
Eaton Vance
30 15.32 (21) 16.62 (8)
Neuberger Berman
46 12.59 (39) 15.57 (12)
Artio Global
32 6.04 (50) 4.46 (50)
24 14.04 (27) 15.47 (13)
American Century
40 11.51 (45) 13.21 (18)
37 12.17 (41) 20.49 (2)
49 18.98 (10) 11.16 (36)
American Funds
31 7.34 (49) 11.39 (33)
43 12.59 (40) 13.55 (17)
Goldman Sachs
50 21.08 (4) 11.72 (31)

This group shows a bit more of a correlation between sector weightings and performance, though it's not particularly strong or obvious. These families do have less financial exposure than the first group, with six of the 10 having a rank of 39 or below in financial weighting; they also have somewhat more health-care exposure, with six of the 10 having a rank of 18 or above in that sector. These families also did fairly well in 2008, with none having an average percentile ranking below 50; that's consistent with the fact that very different types of stocks did well in 2008 and in the current rally.

As with the first group, there are plenty of other factors at work here besides just sector weightings. For example, Neuberger Berman's largest fund by far, Neuberger Berman Genesis (NBGNX), has badly trailed its small-blend peers in this speculative rally because of the managers' preference for stable growers with strong cash flows, though those same features helped the fund do very well in 2007 and 2008. Similarly, GMO is known for investing in very stable, high-quality companies across its fund lineup; that's why it had the best average ranking out of all 50 families in 2008, but the fourth-worst over the past three months. 

These examples highlight the fact that this rally has largely been driven by low-quality, risky assets, with the sectors reflecting this fact only indirectly. Lots of financial stocks are very risky right now and have been bouncing back strongly only after being severely beaten down; less-risky financials, such as small-cap banks without a lot of leverage or mortgage exposure, have not done particularly well in this rally. The big question is how long this rally can last and whether it's likely to give back more of its gains than it already has. Given the continuing economic uncertainty and the still-jittery nature of the markets, it wouldn't be surprising to see more reversals.