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Best-Performing Mutual Funds in 2007

Wednesday, 30 May 2007 | 4:25 PM ET

All eyes have been on China as the engine powering the strong growth of international stock funds. However, according to Lipper, the fund sector that has posted the best returns in the year-to-date period has a decidedly Latin flare.

“Latin American funds are at the top of the heap,” said Tom Roseen, a senior research analyst at Lipper. The fund tracker said Latin American funds have posted a 20.4% cumulative total return in the year-to-date period ended May 25. The return is an even more impressive 53.5% during the trailing 52-week period.

There are several factors driving the strong growth, according to Roseen. One has been the very stable interest rate environment in the U.S., which has allowed investors to stomach greater risk in Latin America.

Also, currencies such as the Brazilian real have held up against other currencies. What's more, the price of copper -- a prevalent metal in the region -- has been strong.

At least part of copper’s strength may be attributed to demand from China, showing just how influential China’s growing economy can be on the rest of the world.

The recent selloff in China, which pushed the Shanghai Composite Index down 6.5% on Wednesday, may have investors looking for new investment ideas. CNBC is interviewing five-star fund managers all day Wednesday to discuss their strategies and favorite investments.

So far this year, investments in China regional funds and Pacific regional funds that exclude Japan have among the best choices for investors. Through the end of last week, the year-to-date returns placed these two sectors as the third- and fourth-best performers, according to Lipper data.

Topping these sectors were natural resources funds, which have benefited from the rally in the energy sector.

Utility stocks round out the top five best-performing sectors. The group’s image as a dependable, if somewhat boring group, changed with the ups and downs of deregulation and the collapse of Enron in 2001. The industry that emerged is more focused and is benefiting from low interest rates and M&A activity.

In the year-to-date period, utility funds are up 13.29%, which is nearly double the performance of the average U.S. diversified stock fund. Over the past three years, the returns are a more attractive 25%, on an annualized basis, according to Lipper.

Although it is too soon to say definitely, Roseen suspects investors are also shifting to funds that invest in either mid-cap stocks or multiple asset classes from small-cap funds. Whether the focus of the fund is growth or value, mid-cap funds have produced some of the richest returns.

Small-cap funds have had a "phenomenal run," but it just "maybe small-caps have run their course," he said.

Lipper Fund Classification

Year-to-Date (5/25/07)

Cumulative Total Return

Latin American Funds20.44
Natural Resources Funds18.50
China Region Funds14.17
Pacific Excluding Japan Funds13.57
Utility Funds13.29
International Small/Mid-Cap Growth 12.64
Telecommunications Funds12.55
Emerging Markets Funds11.78
International Small/Mid-Cap Core11.78
European Region Funds11.41
Global Small/Mid-Cap Growth11.31
Global Small/Mid-Cap Core11.26
International Small/Mid-Cap Value11.19
Mid-Cap Growth Funds11.10

Mid-Cap Core Funds

11.01
Mid-Cap Value Funds10.86
Global Multi-Cap Growth10.03
International Multi-Cap Value 9.71
International Multi-Cap Growth 9.34
Global Multi-Cap Value 9.21

Source: Lipper

Christina Cheddar Berk is a News Editor at CNBC.com. She can be reached at christina.cheddar-berk@nbcuni.com.

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