When you’re considering investing, an investment in a mutual fund is often an easy way to gain exposure to the whole market or a sector which interests you most. Management of the fund, stock selection and weightings, is conducted by a professional manager who is likely to have years of experience investing. But with thousands of funds out there, how do you choose which is best for you?
Many advisers will look at past performance and recent performance, the total expense ratio (which is a measurement of how much the fund charges you), manager ratings and consistency of management, risk profile, and so forth.
Whatever your method of fund selection, what matters most at the end of the day is the return made. It’s why we all invest our hard earned money. So here we look at the top 10 performing funds of 2012 to date, as measured by the return on investment year to date. We’ve used one of the highest rated mutual fund research houses in the market, Zacks Research, to discover these top performing funds for you.
Here’s the countdown, in reverse order, with performance measured year-to-date to the 30 June 2012. Where there are different series of the same fund, we have only included the largest by net asset value.
10. Profunds Telecom Ultra Sector
With its inception date of mid-2000, this fund aims to give an investment return that is 150% of the performance of the Dow Jones US Telecoms Sector Index. It is a narrow focus fund, investing in equities, futures and options on equities and index futures and options within the telecoms sector. It distributes dividends and capital gains once a year.
It holds a little under half of its investments in stock, and over one fifth of its portfolio is in AT&T (NYSE: T).
A small fund with net assets of just $1.83 million, the minimum investment into the fund is $15,000, and year to date it has returned 23.52%.
9. VALIC Co I health Sciences Fund
Holding at least 80% of its assets in the form of common stock, this fund seeks long term capital growth from health science companies. It can invest up to 35% of its total assets in foreign securities, and has produced an annualized return of 12% over the last 10 years.
It also invests in other funds, and has a net asset value of $210 million.
Year to date, the fund has produced a 24.67% return. It has a minimum investment amount of $1,000.
8. The Fairholme Fund
This $8 billion fund seeks long term growth by investing in a portfolio of equities of public companies. It invests in companies that has a good amount of cash on its balance sheet, as well as special situation stocks such as Chapter 11’s. It holds its funds in a small number of investments, the largest of which at present is American International Group (NYSE: AIG) at 30% of the fund assets.
Because of its structure, this is a non-diversified fund that has returned an average of 9% per annum over the last 10 years.
This year-to-date, the Fairholme fund has returned a positive performance of 24.7% and a minimum investment of $10,000.
7. T. Rowe Price Health Sciences
At least 80% of the assets of this $3 billion fund are invested in the common stock of companies associated with healthcare research, development, production, and distribution. Mostly, it invests in the large and medium cap companies in the sector, and distributes dividends and capital gains each December.
This year’s return to date of 24.81% has helped it achieve an annualized return of over 12.5% during the last 10 years.
The minimum investment is $2500.
6. Fidelity Select Biotechnology Fund
A $2 billion fund, which has been available since 1985, it seeks capital appreciation for its shareholders. It usually has more than 80% of its assets invested in the shares of biotechnology companies, be they research, development, service or product related companies.
Investors can invest a minimum of $2500 in this company that has returned 28.3% year-to-date.
5. Rydex Biotechnology Fund
With a history dating back to 1998, this biotechnology fund invests almost all of its assets in the equities of US traded biotech companies, as well as ADRs and US government securities. Dividends and capital gains are distributed annually, as the fund aspires to give its shareholders capital appreciation. It is narrowly held, with a net asset value of only $4.74 million, and investors will need $2500 to make an initial investment.
The year-to-date return is 29.42%.
4. ProFunds Ultra NASDAQ-100 Fund
Another smaller fund, managed by ProFunds Advisors, its aim is to return 200% of the daily performance of the Nasdaq 100 Index before fund expenses. To achieve this, it borrows money to leverage its position in the market, though this also increases the risk profile of the fund. Its primary investments are securities and derivatives: options and futures on Nasdaq 100 stocks and the stock index. Once each year it distributes dividends and capital gains.
An equity based fund, nearly 50% of its holdings are in 10 stocks, the largest of which (16%) is in Apple (NASDAQ: AAPL).
The minimum investment into this fund is $15,000.
With net assets of $116 million, its year-to-date performance shows a return of 30.06%.
3. Rydex NASDAQ-100 2X Strategy H
Having been founded in May 2000, this fund from Rydex, like the ProFunds Ultra NASDAQ-100 Fund, also aims to return 200% of the daily performance of the Nasdaq 100 Index. This fund holds US government securities, as well as equities, and futures and options contracts. Again, any dividends and capital gains are distributed once a year.
Again, the top holding is Apple (at 14.5% of net asset value), though this fund is more heavily biased toward stock holding than the ProFunds Ultra Nasdaq-100.
The minimum investment into this fund is $2500.
With net assets of $117 million, it has returned 30.39% year-to-date.
2. Forward International Real Estate Fund
The highest placed real estate fund seeks to make a return for shareholders from capital appreciation and income. Its primary investments are in international real estate companies, and it has holdings in at least three countries. It can invest up to 20% of its net assets in US real estate companies. This is a non-diversified fund, and investors will require a minimum of $4000 to invest.
It has returned 34.26% year-to-date.
And so we come to the top performing fund, so far, of 2012.
1. Profunds Biotech Ultra Sector
Another small fund, with net assets of around $12.85 million, investors will need a minimum of $15,000 to make an investment into it.
The fund invests in biotechnology companies, using derivative products and ADRs, to achieve its aim of returning 150% of the performance of the Dow Jones Biotechnology Index before expenses. Having been incepted in June 2000, this fund has a track record to look to, and distributes dividends and capital gains annually.
The fund currently has over 50% invested in stock and its largest holding, at around 12.5% of net assets, is Amgen (NASDAQ: AMGN). Its managers administer this non-diversified fund in a concentrated and targeted manner, which has seen them hit gains of 35.52% year-to-date.
What does all this tell us?
One of the adages of wise investment is to ensure that you diversify across asset classes and business sectors.
Yet this theory of wise investment would seem to be blown away by these top ten funds. They have certain facets in common:
They are all specialist, non-diversified funds;
They have a narrow targeted investment philosophy;
Many use derivative products to ramp their performance;
They are all invested in sectors that have, in recent years, been out-of-favor and underperforming: technology, health and biotechnology, and real estate.
If you were to dig deeper, you would find that the year-to-date or one year performance of these funds is way above their longer term annualized performance. This belies the theory that it is not time in the market that dictates better gains, but timing of the markets.
Investing in funds takes away the pain of managing your own portfolio, and puts it into the hands of professionals. But picking the right sectors, as well as then selecting the best fund managers, and actively managing fund choice, is the real key to longer term performance.