The Winner's Circle - 500 top mutual funds for past 3 years

Kiplinger's Personal Finance Magazine, March, 1999

500 top performers over the past three years

Newspapers now print year-to-date total returns of mutual funds, letting you monitor investments better than ever before. Yet you may be missing the big picture. Are your doing well over the long term? Just how they perform year to year With their peers? How badly were they compared burned in sharp, brief market plunges?

You'll find answers to these and other concerns in the following 14 pages. We ranked funds by three-year total return through the end of 1998 and arranged them by category, starting with aggressive-growth stock funds on page 129 and going through municipal-bond funds on page 144. Plus, you'll find phone numbers for all the funds listed starting on page 144.

Three years is a fair measuring rod for the fund universe, with some caveats. In that period, the major stock and bond indexes rose each calendar year, but mixed in were short, sharp downturns, such as the 19% drop in Standard & Poor's 500-stock index between July and October 1998. Bear in mind, however, that the entire three-year period was cruel to a lot of funds that chase fast-growing, small-company stocks.

One easy-to-read feature of these tables merits your close attention: the decile rankings of funds, particularly within their own investment categories, The numbers 1 to 5 signify above-average returns for each of the fast five calendar years, whereas 6 to 10 mean below-average performance. It's too much to expect an unbroken row of 1s. But any fund that can string together above-average numbers within its category in at least three of the past five years is doing something right. The decile ranks among all stock, bond or tax-free-bond funds serve as a reality check for funds with low returns that rank in the upper decile within their category.

Here are some useful benchmarks to compare with fund returns (figures are annualized): for large-company stocks, Standard & Poor's 500-stock index (one year, 28.6%; three years, 28.2%; five years, 24.1%); for small-company stocks, the Russell 2000 index (-2.6%, 11.6%, 11.9%); for international stocks, the Morgan Stanley EAFE index (20.3%, 9.3%, 9.5%); for taxable bonds, the Merrill Lynch Corporate Master index (8.7%, 7.6%, 7.8%); and for tax-free bonds, the Merrill Lynch Municipal Bond index (6.3%, 6.2%, 5.8%).

Similar listings of more than 3,000 funds can be found in Kiplinger's Mutual Funds '99, now on sale at newsstands. You can also purchase it directly by calling 888-547-5464.

How to read these rankings

1 Mutual funds are separated into 13 categories and then ranked by annualized three-year return before rounding to the nearest tenth.

2 Performance numbers are to January 4, stated as average annual compounded return.

3 For bond funds only: Measures dividends distributed in the previous 12 months.

4 Shows performance among funds of the same category for each year, ranked 1 (top 10%) through 10 (bottom 10%). Use the decile ranks to judge consistency year to year.

5 Shows performance among all stock (or bond or muni) funds, ranked 1 (top 10%) through 10 (bottom 10%), so you can check a fund's standing across all categories.

6 Now the fund fared in the latest down markets, measured as total return. The periods for stock funds are July 16 to October 11, 1990, and July 17 to October 8, 1998. The period for bond funds is October 15, 1993, to November 7, 1994; for muni-bond funds, the period is October 31, 1993, to October, 31, 1994.

7 Measures volatility among all stock (or bond or muni) funds on a scale of 1 (least volatile) to 10 (most volatile). Volatility indicates the degree to which a fund could decline in value over the short term in a down market or the rise in an up market. The more volatile, the more potential for gain or loss.

8 The amount of assets a stock fund has in all share classes combined, expressed in millions of dollars. Bigger is not always better.

9 For bond funds only: The average number of years income securities will take to mature, weighted by the value of each security. The higher the number, the more sensitive the fund is to interest-rate swings.

10 The year the lead portfolio manager joined the fund.

11 The minimum you must invest to open an account. Minimums for subsequent investments and IRAs are usually lower.

12 The highest sales fee you'll pay, usually up front. If footnoted with an r, the fee is charged for redemptions.

13 The percentage of your holdings you pay annually to run the fund and compensate managers.

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You can analyze these funds on your computer

Be your own financial analyst with special software on CD-ROM that lets you rank any of 11,367 funds or sort them by conditions you specify. Steele Mutual Fund Expert/Kiplinger Special Edition has a new interface with new features and data fields, and is available to our readers at a 30% savings. Data is to the start of 1999--the same as in Kiplinger's Mutual Funds '99. You can filter the database to find all funds that specialize in, say, Asian stocks or short-term bonds. Then rank them by total return during 1998 (or for the past three, five or ten years, or even the most recent three, six or nine months)--or even by their expense ratios or sales fees. Or ask to see no-load stock funds, with expense ratios below a threshold you specify that outperformed Standard & Poor's 500-stock index during the past five years--or for each of the past five.