Funds with Legs for the Long Run

A Standard & Poor's Persistence Scorecard highlights mutual funds that steadily beat their peers over the past five years

Past performance may not be a guarantee of future results, but it can help identify some worthy mutual funds. The semiannual S&P Mutual Fund Performance Persistence Scorecard tracks the consistency of top performers over consecutive three- and five-year periods. The survey uses "apples to apples" comparisons, so large-cap funds vie with other large-caps, not with mid- or small-cap portfolios.

Very few funds manage to repeat top-half or top-quartile performance. Only 71 (or 13.2% of) large-cap funds, 16 (9.9%) mid-cap funds, and 24 (10%) small-cap funds maintained a top-half ranking over five consecutive 12-month periods ended December 31, 2006. Only eight (3%) large-cap funds, two (2.5%) mid-cap funds, and no small-cap funds maintained a top-quartile ranking over the same period.

"This research suggests that screening for top-quartile funds may be inappropriate as the sole basis for an investment decision," says Srikant Dash, index strategist at S&P. "A majority of top-quartile funds in the future come from the ranks of prior-period second- and third-quartile performers, and the absolute counts of repeat top performers are low."

What distinguishes the top performers from the rest? We found that, in general, consistently strong funds have lower expense ratios than their peers and managers who have been at the helm longer. Not unsurprisingly, bottom-quartile funds were much more likely than top-quartile funds to be liquidated or merged into other portfolios.

The funds in the table below were consistently in the top half of performers in the latest S&P survey. They are all open to new investors, have no front-end loads and what we consider reasonable expense ratios. In addition, they all had five-year annualized returns of at least 10% through Dec. 31, 2006.

Consistent Performers
Fund name Symbol S&P Ranking Turnover (%) 12-Month Return (%) 3-Year Return (%) 5-Year Return (%)
LARGE-CAP FUNDS          
Amana Trust Income AMANX 4 10 21.2 18.0 12.2
Am. Beacon Large Cap Value AAGPX 5 25 18.7 15.7 12.0
Cambiar Opportunity CAMOX 3 38 16.6 12.8 10.2
Marsico 21st Century MXXIX 5 136 18.6 16.1 15.8
Target Large Cap Value TALVX 4 90 19.3 14.7 12.2
TCW Diversified Value TGDVX 4 35 18.5 15.1 10.9
Vanguard Windsor II VWNFX 4 28 18.2 14.4 10.1
S&P 500       15.8 10.4 6.2
           
MID-CAP FUNDS          
Accessor Small/Mid Cap ASMCX 4 42 13.7 15.2 13.4
Fidelity Leveraged Co. Stock FLVCX 5 23 17.6 19.8 27.1
Janus Mid Cap Value JMCVX 4 86 15.3 14.6 12.8
Vanguard Selected Value VASVX 5 28 19.1 16.6 14.1
Vanguard Strategic Equity VSEQX 3 75 13.4 14.5 13.4
Westcore Mid Cap Value WTMCX 3 49 12.2 16.2 12.0
S&P MidCap 400       10.3 13.1 10.9
           
SMALL-CAP FUNDS          
Columbia Acorn ACRNX 5 16 14.5 16.3 14.7
Perritt Micro Cap Opportunities PRCGX 5 24 13.7 15.1 20.2
Stratton Small Cap Value STSCX 3 15 13.8 16.8 16.7
Target Small Cap Value TASVX 5 118 17.7 17.1 16.7
S&P SmallCap 600       15.1 15.0 12.5

And here's a list of the top 10 funds among large-cap, mid-cap, and small-cap equity funds, ranked by five-year annualized returns through Dec. 31, 2006.

Top Ten Funds (ranked by five-year annualized returns in each category)
Fund Name Symbol Five-Year Return (annualized %) Fund Status
Large Cap    
Marsico 21st Century MXXIX 15.83 Open
HW Large Cap Value/I HWLIX 14.28 Closed
RiverSource Dvsfd Eq/A INDZX 13.17 Open
Dodge & Cox Stock DODGX 12.84 Closed
Am Beacon LCVl/AMR AAGAX 12.56 Open
DFA US Large Cap Val III DFUVX 12.48 Open
DFA US Large Cap Val II DFCVX 12.46 Open
LWAS/DFA US Hi Bk to Mkt DFBMX 12.28 Open
Target:Large Cap Value TALVX 12.23 Open
Amana Mutual Fd Tr Income AMANX 12.17 Open
S&P 500 Index   6.19
     
Mid Cap    
Fidelity Leveraged Co Stk FLVCX 27.08 Open
HW Mid-Cap Value/I HWMIX 17.92 Closed
Artisan Mid Cap Value ARTQX 16.96 Closed
SEI Instl Mgd Mid-Cp/A SEMCX 14.29 Open
Columbia Mid Cap Val/Z NAMAX 14.21 Open
Vanguard Selected Value VASVX 14.12 Open
n/i numeric inv MidCap NIGVX 13.81 Open
Vanguard Strategic Eqty VSEQX 13.43 Open
Accessor:Sm to Mid Cp/Adv ASMCX 13.38 Open
Rainier:Small/Md Cp Eq RIMSX 13.09 Closed
S&P Midcap 400 Index   10.88
     
Small Cap    
Perritt Capital Growth PRCGX 20.15 Open
n/i numeric inv Sm Cap Vl NISVX 19.52 Closed
DFA US Small Cap Value/II DFAVX 19.21 Open
Gartmore Small Cap/A GSXAX 19.13 Open
DFA US Small Cap Value DFSVX 18.90 Open
DFA US Targeted Val Port DFFVX 17.81 Open
Pacific Cap Small Cap/Y PSCYX 17.64 Open
Boston Co Sml Cap Value STSVX 16.86 Closed
Satuit Cap Mgmt MCp SATMX 16.71 Open
Target:Small Cap Value TASVX 16.69 Open
S&P SmallCap 600 Index   12.49

(For more information on funds, visit BusinessWeek.com's Mutual Fund Scoreboard.

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