List of mid-growth funds has new top five

Market's ugly year shakes up an area known for steadiness

Dollars & Sense

October 21, 2001|By Russel Kinnel | Russel Kinnel,MORNINGSTAR.COM

It's been an ugly 12 months for the market. The sell-off was well under way at this time a year ago, but growth funds still boasted impressive long-term numbers.

Not anymore.

Take RS Emerging Growth. Last year, the fund's 28.74 percent annualized returns during the previous 10 years placed it third among diversified funds. (I'm defining diversified as U.S. stock funds that are not sector funds, and the time period is for the 10 years ended Oct. 3.) Now it ranks 136th with annualized returns of just 13.10 percent. Ouch. That the five mid-growth funds at the top of the list a year ago are out of the top five is no surprise. Here are their replacements:

Calamos Growth. Annualized 10-year return: 19.32 percent. Amazingly, a different mid-growth fund is at the top of the charts. Calamos Growth uses a quantitative earnings-momentum strategy that spotted trouble in tech early last year and switched into energy stocks. As a result, the fund was able to hold on to most of its bull-market gains - unlike other aggressive funds. It even found some big winners such as Alliance Gaming and H&R Block to offset losses.

Weitz Partners Value. Annualized return: 18.79 percent. From here on out, it's all value - and boy, has it been a long time since the value set was on top. Wally Weitz looks for good companies trading at low prices to their cash flow. If nothing looks cheap, he'll hold cash. This is the tax-managed version of his fund. Don't let the high-minimum investment bother you; you can get it for $2,500 through most NTF (no transaction fee) plans.

Oakmark Fund. Annualized return: 18.43 percent. Surprise, surprise! This much-cursed value fund is looking pretty darn good. Robert Sanborn made some great picks in the early- and mid-1990s, and Bill Nygren has done an outstanding job the past two. This year might well be Nygren's best at this fund and sibling Oakmark Select. Oakmark is up 10 percent, and Select is up 19 percent. That's so good, it's scary. By the way, Nygren owns H&R Block.

Legg Mason Value. Annualized return: 17.83 percent. Bill Miller's fund lost money last year, and it's losing it again this year. However, both numbers are ahead of the S&P's returns. Sure, Miller owns some growth stocks, but the portfolio isn't so risky that he had to give back all his gains from the 1990s. This past summer, he made some typical Miller investments. He bought telecom-equipment shares, because they had become much cheaper than Miller's estimate of their value. That's not a traditional value industry, but it's hard to argue that they aren't value stocks at this point.

Weitz Value. Annualized returns: 17.80 percent. See No. 2.

Bonus: Clipper Fund. Annualized returns: 17.77 percent. Because Weitz Value is similar to Weitz Partners Value, I'm giving you a sixth fund, gratis. That's fitting, as the Clipper managers buy only stocks that are marked up just slightly from free. Managers James Gipson, Michael Sandler and Bruce Veaco want something trading at least 30 percent below their estimate of intrinsic value. That protection against price risk is just what investors needed in this bear market. As a result, the fund earned a nice return last year and has a modest 3 percent gain this year.

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