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Tuesday, June 19, 2012

10 Stocks of Top-Performing Mutual Funds in 2012

It's been a miserable past few years for actively managed mutual funds as investors have been stampeding out of them to seek low-risk alternatives to stocks, such as bond funds.

But there are a few U.S. equity funds that are earning their keep with returns more than double that of the S&P 500's 6.8% gain this year, which should convince some investors that it's worth keeping a toe in the stock market.
As for the funds, investors have taken more than $172 billion out of actively managed U.S. and international funds over the past 12 months, and U.S stock funds saw their 13th consecutive month of outflows in May, fund tracker Morningstar said Friday.

A good bit of that money could come back into stocks once there is a clear resoultion to Europe's sovereign debt woes, which will give a tremendous boost to the market.

But for now, it appears investors can't stomach the market volatility especially after getting burned in the 2008 market swan dive and the prospects for an economic meltdown in Europe.
AIG makes up about 30% of the Fairholme portfolio
AIG Building (Photo credit: Wikipedia)

Nevertheless, some wily fund managers are more than earning their keep in the current, hostile environment for stocks.

For example, the $7 billion Fairholme(FAIRX_) fund, run by the highly respected Bruce Berkowitz since 2000, is back as a top performer after a tough run last year when it plunged 32%, with an 18.7% return so far in 2012. His "put all your eggs in one basket" approach is not for everyone, but when he's on a winning streak, Berkowitz is hard to beat. This year, his fund is in the top 1% of funds in the large-value fund category in terms of performance. 

Berkowitz's risky bet on the property-casualty insurer and financial-services giant American International Group(AIG_) (the fund owns 4.4% of its shares versus 0.3% for the next largest shareholder) a few years ago, is paying off big time with a 30% gain, after a 52% plunge in its share price last year. AIG makes up about 30% of the Fairholme portfolio and is its biggest holding.

And Fairholme has also done well on another decidedly out-of-favor stock, the struggling retailer Sears Holdings(SHLD_). Its shares are up 59% this year despite its recent dismal financial performance and concerns about its survivability in a tough retail environment. The fund owns 13% of Sears's outstanding shares, with the next largest investor at a mere 1%.

SunAmerica Focused Growth(SSAAX_) fund, with $133 million in assets, is up 17% this year to put in the top 1% of its large-growth category peers. Managed by Ron Sachs since 2008, it has the ever-popular iPhone and iPad maker Apple(AAPL_) as its top pick at just over 9% of the fund (Apple is up 41% this year), followed by online auction site eBay(EBAY_), up 32% this year.

But SunAmerica's biggest winner is soda maker Monster Beverage(MNST_), up 62%. 

Also on the best-performers list is the $2 billion Touchstone Sands Capital Institutional Growth(CISGX_), which has been run by Frank Sands Jr. for the past seven years. It's up 12.4% this year, putting it in the top 2% of the large-growth fund category. It has benefited from its 8.7% Apple stake, but also from investments in biopharmaceutical firms.

They include Regeneron Pharmaceuticals(REGN_), which is up 102% this year and makes up 3.3% of the portfolio, and Alexion Pharmaceuticals(ALXN_), up 30% this year, at 4% of the portfolio.

The $118 million Matthew 25(MXXVX_) fund, run by Mark Mulholland for almost 16 years, is up 14.6% this year, also putting in the top 1% of the large-growth category of funds. It, too, has Apple as its top pick, but among its other big winners are the sporting goods retailer Cabela's(CAB_), up 32% this year and the fund's third-largest holding at 7% of the portfolio.

Matthew 25 also has gotten a boost from another outdoor enthusiasts' products maker, snowmobile and all-terrain vehicle manufacturer Polaris Industries(Pii), which has gained 24% this year.

Also leading the league is the $224 million, small-cap growth fund Hennessey Cornerstone Growth(HFCGX_) run by Neil Hennessey since 2000. It's up 15.2% this year, putting it among the top 1% of performers among its peers thanks to the success of its stake in the specialty chemicals maker American Vanguard Corp.(AVD_) and yet another snowmobile manufacturer, Arctic Cat(ACAT_).

Here are 10 stocks held by five top-performing actively managed stock mutual funds, in inverse order of share-price return this year:

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