It's hard sometimes to be in the top half of all investment funds for total return in any given year, and it's extremely hard to be in the top half for many years back-to back.
Anybody can be a flash in the pan, but few can stay in the pan and sizzle for many consecutive periods.
So as not to be excessively demanding, we conducted a survey only requiring that a fund be at or above the median level of performance for each calendar period.
Looking at the nearly five-year period (2007 through October 31, 2011 - four years and 10 months), there are only eight equity funds that made it into the top half of equity investment funds in each calendar period.
- IGV (iShares S&P North America Tech-Software)
- IJK (iShares S&P Mid-Cap Growth)
- IWF (iShares Russell 1000 Growth)
- IWZ (iShares Russell 3000 Growth)
- NFO (Guggenheim Insider Sentiment)
- RFG (Rydex S&P Mid-Cap Pure Growth)
- SPYG (SPDR S&P 500 Growth)
- VUG (Vanguard Growth)
There were no ETFs that made it into the top half by performance for periods that included 2006 or prior years.
What Does Top Half Mean?
Because there are far more mutual funds than ETFs, and because they have far more assets, we used the performance distribution of equity only, no-load mutual funds, that required $100,000 or less as an initial investment as the measuring stick.
Here is a list of the number of qualifying equity mutual funds in existence in each of the years from 2001 forward, along with the median total return of those funds for each year:
- 2001: 1087 / -8.83%
- 2002: 1165 / -17.99%
- 2003: 1219 / 34.03%
- 2004: 1271 / 13.89%
- 2005: 1372 / 8.02%
- 2006: 1464 / 14.98%
- 2007: 1585 / 7.38%
- 2008: 1680 / -39.05%
- 2009: 1789 / 32.21%
- 2010: 1854 / 15.86%
- 2011 10-months: 2009 / -2.87%
Who and What Passed?
On the ETF front, growth funds were the winners from 2007 forward. They were all also U.S. domestic funds. However, that period did not include the boom market after 2003 or the bear market years of 2001-2003.
There also weren't very many equity ETFs available in 2001. There are over 1,000 now. The numbers in prior years were:
- 2001 -- 75
- 2002 -- 97
- 2003 -- 103
- 2004 -- 113
- 2005 -- 146
- 2006 -- 194
- 2007 -- 320
- 2008 -- 470
- 2009 -- 595
- 2010 -- 682
What Types of Funds Made the Grade For Long Stretches?
No funds made the top half in each and every calendar year from 2001 forward, nor for that matter from 2002 or 2003.
One mutual fund made the grade from 2004 forward. That fund was Amana Trust (AMAGX).
Not to take away from their stock picking or sector allocation skills, a key factor is Amana's investment policy limits. As a Shiria-compliant investment fund, they cannot invest in certain types of stocks, most significant of which are those dealing in or relying on interest. That means they could not be in the financial sector. And that means their investment policy prevented them from participating in the banking carnage of 2008-2009.
It wasn't until 2006 that additional mutual funds made the grade, and then only four. By 2007, there were 34 mutual funds that passed the test (compared to the eight ETFs that passed the test).
Those 34 mutual funds were a mixture of large-cap, mid-cap and small-cap blend and growth funds, and included three small-cap value funds, one technology sector fund and one world stock growth fund.
Out of the thousands of the more than 1,100 investment funds (either ETF or mutual funds) that existed for more than 10 years and still exist today, no investment manager or team, and no investment philosophy, strategy or method was able to keep the fund in the top half of funds for 10 or more years.
In fact, except for the special case of Amana Trust, which had a mandate prohibiting financials at an opportune time, no manager, team, philosophy, strategy of method could keep a fund in the top half for more than nine years, or more than eight years, or more than seven years.
Only four funds (one-fourth of 1% of funds) made it to the top of each of the six calendar years (counting 10-months of 2011 as a year) from 2006 forward.
Only about 1.8% of funds (34 funds) made the top one half of funds for each calendar year for five years from 2007.
In spite of the brightest and the best at the helm, it is not at all probable that any equity fund of any type can stay on top for a long stretch.
Disclosure: QVM does not have positions in any mentioned security as of the creation date of this article (November 27, 2011).
Disclaimer: This article provides opinions and information, but does not contain recommendations or personal investment advice to any specific person for any particular purpose. Do your own research or obtain suitable personal advice. You are responsible for your own investment decisions. This article is presented subject to our full disclaimer found on the QVM site available here.