The S&P 500 may be up 2.8 percent this year, but investors who hold the top performing 5-star funds are doing significantly better than that. In fact, one 5-star Morningstar fund is up an astounding 42.59 percent.
The JennDry Dryden Financial Services fund has performed well despite the drama surrounding the bank stress test, tight credit markets and rising customer defaults.
Portfolio manager Mark Lynch said his investment strategy boiled down to which bank’s balance sheets were truly distressed and which were “being pulled down by the pervasive climate of fear.”
The Dryden Financial Services fund is global, and Lynch said they “widely diversified from the United States and focused on countries with strong domestic financial sectors and good savings rates.”
Bank of Nova Scotia
Lynch said these two banks have “avoided almost all of the major problem areas and are well-positioned to take advantage of the distress of others.”
He cautioned, however, that the economy is “still not out of the woods” and the financial sector continues to encounter almost daily headline risk.
Foreign large growth, emerging market, mid-cap and technology funds also are up more than 20 percent year-to-date. Technology and software funds continue to rally as the Nasdaq is up 10.2 percent year to date.
Many portfolio managers are sticking with their time-tested investment strategies.
The Goldman Sachs Tollkeeper fund is up 29.46 percent this year. Chief Investment Officer David Shell said the strategy deployed for over 20 years has not changed and the fund continues to look for "great franchises with significant growth opportunities or improving competitive advantage."
Shell said companies that can survive or thrive in a difficult environment are attractive.
In the meantime, the lead portfolio manager for the technology fund, Scott Kolar, said Iron Mountain, a document storage company, is a "top quality business that has been unfairly punished" by the markets. The stock is still up 16.5 percent this year, however.
Kolar says the addition of online document technology has given the company a huge competitive edge. "The next competitor could not compete," he said.
Research in Motion
Both Iron Mountain and RIMM are top-10 holdings.
On the software side, Seligman Global Technology fund is up nearly 21 percent this year. Rich Parower heads up the fund, and said he prefers stocks with a "low average selling price and a high return on investment.”
He said as hardware becomes more commoditized, the value lies in systems and software.
Disclosure information was not available for Lynch, Kolar, Shell or Parower.