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posted: 8/28/2011 6:00 AM

8 revealing stats for fund investors

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  • While stocks have tumbled, mutual funds that specialize in long-term government bonds have returned an average 10.6 percent, according to Morningstar.

      While stocks have tumbled, mutual funds that specialize in long-term government bonds have returned an average 10.6 percent, according to Morningstar.

 
Associated Press

BOSTON -- It's important to avoid getting caught up in the stock market's day-to-day convulsions. Consider that most investors build up their retirement savings over three decades or longer. A single month of losses won't amount to much over the long haul.

Yet occasionally, swings in the market are so severe that even the savviest long-term investors can't resist peeking at their portfolio balances frequently.

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This is one of those times. The Standard & Poor's 500 index has tumbled nearly 14 percent over the past 30 days, entering what market pros call a correction. Stocks have veered wildly, with alternating daily losses and gains as investors consider whether another recession looms.

All this has set back investors struggling to recover from the market's plunge. In late July, the S&P 500 hadn't returned to its 2007 peak, but was up nearly 100 percent from its March 2009 low. Now, the gain has dwindled to about 70 percent.

Below are eight revealing statistics about the market correction that may help investors brace for their next quarterly 401(k) statements and mutual fund reports. Each illustrates which investments have been holding up relatively well over the last four weeks, and which haven't:

1. Treasurys rally

While stocks have tumbled, mutual funds that specialize in long-term government bonds -- those with maturities of 15 years or longer -- have returned an average 10.6 percent, according to Morningstar. That's a sizzling gain in a short period. Investors in government bonds don't expect to get rich, as Uncle Sam's IOUs usually offer steady, slightly positive returns. A few weeks ago, investing in Treasurys might have seemed crazy, because the government was on the verge of a possible default. A last-minute debt-ceiling deal in Congress averted disaster, and Treasurys have rallied as investors sought protection from stock volatility. But be careful. Treasury yields -- which move in the opposite direction of Treasury prices -- are at historic lows. If the economic recovery gets back on track, Treasury yields would rise and prices would drop, possibly leading to investment losses.

2. Sin is in

A quirky fund called the Vice Fund (VICEX) has fared better than 92 percent of its large-blend stock fund peers. It has kept losses relatively small at 11 percent over the last four weeks. The fund invests in stocks associated with vices, such as booze and smoking. Lately, three cigarette makers have contributed greatly to Vice Fund's relatively strong performance. Shares of Lorillard are up nearly 2 percent over the past four weeks, while Altria Group and Phillip Morris International are down just slightly. This year, Vice Fund ranks in the top 1 percent of its category, with a 3.4 percent return, versus a nearly 7 percent average loss among peers. One lesson: Industries that cater to consumers' vices typically hold up well in tough times.

3. All stock funds are down

Not a single U.S. stock mutual fund posted a positive one-month return through Wednesday, according to Morningstar, which tracks thousands of such funds.

4. Utilities help limit losses

Funds that specialize in utilities stocks have lost an average 5.6 percent, the top performance among Morningstar's 21 domestic stock fund categories. Top performers over the past four weeks include ICON Telecommunications & Utilities (ICTUX), Franklin Utilities (FKUTX) and Invesco Utilities Investor (FSTUX), each with losses of around 1 to 2 percent. Utilities stocks tend to see steady demand in good times and bad.

5. Manufacturers hurt the most

Funds that invest in stocks of industrial companies have been the worst performers, losing nearly 19 percent. These funds specialize in manufacturers and chemical companies, their stocks that tend to be among the first to drop when the economy begins to slow. The second-worst group: Funds specializing in small-growth stocks, a volatile market segment. Those funds have lost an average 18.6 percent.

6. Fallen fund struggles

Fairholme Fund (FAIRX) has lost 18 percent, worse than 99 percent of its large-value stock peers for the past four weeks. It's also near the bottom of the pack this year, down 26 percent. It's a stunning about-face for a $13 billion fund that consistently delivered market-beating returns over the past decade. The performance earned its manager, Bruce Berkowitz, Morningstar's Stock Fund Manager of the Decade honors in January 2010. Yet Fairholme lost its coveted 5-star Morningstar rating in May because of dreadful recent returns. Blame Berkowitz' expectations of a comeback for large insurance companies and banks. American International Group and Bank of America were recently among Fairholme's top holdings, and they have continued to struggle. AIG shares are down 60 percent this year. Bank of America is down 43 percent, even after the stock got a lift Thursday when Warren Buffett's Berkshire Hathaway announced a $5 billion investment in the bank.

7. Fund gets back on top

Forester Value (FVALX) ranks among the top 1 percent of its large-value stock fund peers the past four weeks, with a loss of just 3 percent. It's another strong result for Forester Value, which finished 2008 as the only U.S. stock fund with a gain. It essentially broke even that year, returning 0.4 percent while nearly every other fund posted a double-digit loss. Credit Forester Value's defensive style, emphasizing stable dividend-paying stocks. The fund also recently held 19 percent of its portfolio in cash, providing cushion from falling stock prices.

8. Bearish behavior pays

The top performing mutual funds over the past four weeks have been bear market funds, up an average 15 percent. These funds try to deliver positive returns by employing investment strategies that generate profits when stocks decline. Among them are "short" bets that certain stocks will lose value.

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