A fund's performance shouldn't depend too heavily on the rotation of the Earth around the sun, however, unless the planet strays into some alien's shipping lane. But that's precisely how we measure performance: How did my fund do this year? Last year? The past 10 years?
It's much more useful to measure a fund by how it has performed during market cycles. Ideally, you'd like a fund that fares better than its peers in bull and bear markets. We've had two bull and two bear cycles in the past decade, and a few funds have done exceptionally well in good times and bad. Although we never know what the next market will be like, these all-weather funds are worth a look.
The Standard & Poor's 500 stock index fell 19 percent from July 17, 1998, through Aug. 31, 1998 -- just shy of the classic 20 percent decline required for an official bear market, but close enough for our purposes. So we're going to start the first bull market for this exercise on Aug. 31, 1998.
The S&P 500 soared 60 percent from August 1998 through its peak in March 2000, then swooned for a 49 percent loss in the ensuing bear market, the worst since the Great Depression. From October 2002 to its next peak, in October 2007, the S&P 500 leaped 101 percent. As of Thursday, the S&P has fallen 18.5 percent.
The funds with the best 10-year records are in the chart. We should give honorable mention to Bridgeway Aggressive Investors I (ticker: BRAGX), which is closed to new investors. The fund has soared 399 percent the past 10 years. A similar fund, Bridgeway Aggressive Investors II (BRAIX) is still open for new investors.
Lipper, the mutual fund trackers, classifies Bridgeway Aggressive Investors and Quaker Strategic Growth (QUAGX) as multicap funds, which means they can invest in the stocks of any size company. At least at the moment, those funds are invested primarily in large-company stocks. Both funds, however, dipped fairly deeply into small and midcap stocks in the early part of this decade.
Among conservative funds, Gabelli Equity-Income (GABEX) has gained 106 percent the past 10 years. It slid just 7.9 percent in the 2000-2002 bear market. Like many Gabelli funds, it's not cheap: The fund charges 1.43 percent a year in expenses. On the other hand, it's pretty tough to argue with its results. Other funds worth a look:
Large-company growth. Janus Advisor Forty (JDCAX) beat its peers the past decade -- and in bull and bear cycles -- but it was still a ragged ride. Growth funds look for stocks of companies with soaring earnings. The average large-cap growth fund fell 53 percent in the 2000-2001 bear market, and Janus Advisor Forty fell 51 percent. The fund has gained 110 percent the past decade, however, thanks to big gains in bull markets.
Large-company value. Value funds look for stocks of beaten-up, misunderstood companies, in the hope that they will eventually return to Wall Street's favor. Broker-sold MFS Value (MEIAX) fell just 3 percent during the 2000-2002 bear market. Like most value funds, it has suffered more during the most recent downturn: The fund has fallen 12 percent since October 2007, vs. 17 percent for the average large-cap value fund.
Large-company core. Core funds are an amalgam of growth and value: They're often called GAARP funds, for "growth at a reasonable price." Broker-sold Victory Diversified Stock A (SRVEX) has gained 103 percent the past 10 years; its manager has been at the helm nearly 20 years. For no-load fans, TCW Equities I (TGLVX) has gained 80 percent the past decade, and offers a low 0.76 percent expense ratio, too.
Small and midcap stocks often follow a different cycle than large-company stocks, and they held up far better in the 2000-2002 bear market than large-company stocks did. One small-company core fund not in the chart deserves mention, however: Royce Low-Priced Stock (RYLPX), looks for stocks selling for less than $25 a share - not quite the same as a small-company stock, as General Motors shareholders could tell you. It has fallen just 5.3 percent in the most recent downturn.
At least during the Earth's most recent rotation around the sun, fund performance has been fairly rotten. But if you look at market cycles -- instead of solar ones -- you might have a better chance of choosing a winning fund.
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