Unbelievably, with the right investments, you could have increased your nest egg four- or fivefold over the past decade, even as the S&P 500 sputtered out a measly 2.1% average return per year. If you pulled off massive multibaggers, then hearty congratulations are in order. Count yourself ahead of yours truly, most hedge fund managers, and Warren Buffett. But what lessons can those of us who couldn't stay ahead of the pack glean from the winners?
Why funds?
Nearly all investors own mutual funds. Chances are, if you contribute to a retirement plan, you own at least one fund.
Let's quickly make sense of some jargon before we delve into the top-performing funds of the past decade.
- A load is a commission that you pay to buy or sell a mutual fund.
- An expense ratio is what it costs the investment company to manage a fund each year; it lowers your investment return. The lower the expense ratio, the less you pay.
- Portfolio turnover measures how often assets in the fund are bought and sold. For example, a portfolio turnover of 10% means that if a fund manager started with 100 equally weighted stock positions in the fund on Jan. 1, by Dec. 31, 90 of those positions are still the same. Funds with low portfolio turnover cost you less money in fees and taxes.
Top funds
|
Fund (Ticker) |
$10K Invested 10 Years ago Grew to |
Load |
Expense Ratio |
Morningstar Category Average Expense Ratio |
Portfolio Turnover |
Manager Tenure |
|---|---|---|---|---|---|---|
|
BlackRock Latin America (MDLTX) |
$54,648 | 5.25% | 1.55% | 1.89% | 33% | 10 years |
|
T. Rowe Price Latin America (PRLAX) |
$50,134 | No | 1.25% | 1.89% | 15% | 11 years |
|
Fidelity Latin America (FLATX) |
$49,465 | No | 1.00% | 1.89% | 11% | 3 years |
|
CGM Realty (CGMRX) |
$49,744 | No | 0.88% | 1.38% | 69% | 29 years |
|
USAA Precious Metals and Minerals (USAGX) |
$46,881 | No | 1.15% | 1.40% | 24% | 19 years |
|
Oppenheimer Developing Markets (ODMAX) |
$46,716 | 5.75% | 1.30% | 1.63% | 34% | 5 years |
|
DFA Emerging Markets Value (DFEVX) |
$45,180 | No | 0.61% | 1.63% | 15% | 13 years |
| DFA Emerging Markets Small Cap (DEMSX) | $45,009 | No | 0.79% | 1.63% | 18% | 13 years |
|
Eaton Vance Parametric Tx-Mgd Em Mkts (EITEX) |
$44,500 | No | 0.95% | 1.63% | 4% | 5 years |
|
Bruce (BRUFX) |
$43,700 | No | 0.82% | 1.02% | 20% | 28 years |
Sources: Morningstar, Yahoo! Finance. Returns as of May 15, 2012. Investment returns assume reinvestment of dividends. Manager tenure reflects the most senior manager's years of investment management experience.
These results show three clear areas of strength: emerging markets, gold, and real estate.
Going to market
Growth-rich emerging markets garner a great deal of attention. Of the 10 top performers, most had exposure to emerging markets through three stocks: Petrobras
The B in BRIC led the way as two of these three stocks are Brazilian companies: oil and gas conglomerate Petrobras and financial services powerhouse Itau Unibanco Holding. America Movil is a Mexican telecom company. Even though emerging markets have pulled back lately, I have no doubt that stocks with emerging-market exposure will continue to interest investors.
Tale of two emotions
Greed and fear drive the market, and there was no shortage of either in the past decade. And when it comes to greed, you have to talk about financial services and real estate. Some of the top-performing funds had exposure to banking stocks and REITs.
When fear runs rampant, as it has at several points in the past decade, investors flock to safe investments. Institutional money managers were no different; they doubled down on gold stocks, from large miners Goldcorp
Meanwhile, real estate has gone through a boom and a bust in the past 10 years, but real estate investment trusts have maintained strong performance. By capitalizing on low interest rates, many REITs have actually benefited from the weak economy even as real estate prices have struggled.
Common denominators
The top performers share more than just similar holdings.
- Eight of the top 10 performers are no-load funds.
- All 10 funds have expense ratios less than their corresponding Morningstar category average expense ratio.
- Nine of the 10 funds have portfolio turnover that is less than the industry average 68% for these categories. Portfolio turnover for nine of the 10 funds is less than half the average.
- Seven of the top 10 performers are led by individuals with more than a decade of experience managing money.
Lessons learned
A decade from now, emerging markets, real estate, and gold might not lead investors to a pot of portfolio riches. Markets are fussy and cyclical; winners this decade may be losers next decade. Regardless of which sector is crowned next decade's darling, concentrating on funds with low fees, low portfolio turnover, and experienced money managers offers investors a lengthy head start.
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