Published: Friday, 18 Sep 2009 | 3:36 PM ET

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Following a tumultuous, volatility-filled ride, stocks over the past 11 months are about right back where they started. Many investors, though, haven't been so lucky.

The market last closed at its current level on Oct. 6, three weeks after the implosion of Lehman Brothers and the ensuing collapse of the nation's financial system. Stocks hit intermediate lows in November and then again in March, followed by a resounding rally that, by rights, should have many investors back on their feet again.

Yet portfolios remain under pressure.

Mutual funds have seen a strong 2009 but most have lost money in year-over-year comparisons. Technology funds have performed best in the 12-month period but still remain slightly negative, while real estate is off more than 30 percent, equity energy down 20 percent and industrials off more than 18 percent, according to Morningstar.

Jeff Cox
Staff Writer
CNBC.com

The primary reason why investors haven't capitalized, though, has been fear. Many remain unconvinced that the rally is for real, and thus haven't participated in the meteoric run-up.

"The whole way through you keep hearing people saying it's not going to last, it's a bear market rally, we're going go down again," says Matthew Tuttle, president of Tuttle Wealth Management in Stamford, Conn. "Yes, the market has been up big, but the average portfolio manager has not been along for this whole ride because they don't believe it."

Safety has been the main goal of many investors who still have fresh memories of rampant fluctuations in the market.

Friday, in fact, marks the anniversary of perhaps the craziest day of the entire crisis.

The market rode a one-day roller coaster that saw it swing more than 7 percent from the intraday high to its low as rumors ran rampant that another casualty was coming after Lehman Brothers. The final two hours of trading saw the market whipsaw, churning a hundred or more points in a matter of minutes.

Such recollections have left even the most stoic investors cautious—and still mindful that the market has a long way to go to regain its historic highs.

"Stocks are well below where they were back in September (2008) despite this recent rally," says Frank Haines, chief investment officer at Christian Brothers Investment Services in New York, a firm that primarily handles institutional investors. "Most never anticipated this degree of downside on the stock market."

Indeed, the market remains more than 7 percent below its closing value of a year ago and a solid 30 percent below its all-time high recorded in October 2007.

Amid the turmoil since Lehman, smart investors scurried to bonds.

Global bond funds have led the returns, brining in nearly 11 percent over the past 52 weeks and 11.8 percent in 2009. Templeton and Pimco have run two of the leading funds, bringing in respective returns of 17 and 12 percent over the course of the full year.

Vanguard's high-yield corporate fund is up just 3.84 percent year over year but is on a 28.8 percent tear in 2009. Fidelity's capital and income fund is up 52 percent for the calendar year, and 8.2 percent in the 52-week period.

That would all be well and good, except most retail investors traditionally weight portfolios in favor of stocks.

"Most people have little exposure to bonds," Haines says. "They're facing an economy which is very uncertain. They're worried about their salary. It's not a good environment."

The upside for portfolio managers is that many investors seem patient to let the market work its way higher. Trends point to investors moving further away from risk, and they've found other ways to capitalize as well.

Gold and oil prices have soared during the stocks rally as the dollar has weakened.

Some of the highest-performing individual funds over the past 12 months, meanwhile, have been those most closely linked with precious metals and emerging markets.

If anything, then, the past year is a lesson in staying nimble, trying to capitalize when times are good but holding protection when things get bad.

"We've been doing fine, though I've been scared to death the past couple of months," Tuttle says. "The average portfolio manager has been investing on what they think the market should be doing. We've been investing on what the market is doing."

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