In the Black

Mutual Funds

In the Black

There's a lot to be said for a stock fund that makes money every year. Because the stock market loses money one year out of four, such funds are rare. Thanks to the market's dismal performance in 2002 (the S&P 500 tumbled 22% that year), only a handful of diversified stock funds (both domestic and foreign) have black-ink streaks that date to that year and before. On the other hand, 14 real estate funds have rung up positive returns for at least five straight years because of strong performance since 2000 among real estate investment trusts. But those funds will be hard-pressed to avoid red ink in 2007 because REITs are in the red this year.

The positive-return champ is T. Rowe Price Capital Appreciation (PRWCX). Including the first half of 2007, the fund has produced black ink for 17 consecutive years. Most of that record was attained under previous managers: Current captain David Giroux has been with the fund only since July 2006. Capital Appreciation typically keeps a little more than half of its assets in undervalued stocks of established companies and the rest in preferred stocks, regular bonds, convertible bonds and cash. Its only negative year was 1990, when it lost 1%; it even eked out a 0.5% gain in 2002. The fund's annualized return of 12% over the past decade beat the S&P 500's return by an average of five percentage points per year.

Two funds tie for the next-longest record of positive years. Counting the first half of '07, both Gabelli ABC (GABCX) and First Eagle Overseas (SGOVX) chalked up 14 straight years of positive returns. Manager Mario Gabelli buys shares of companies targeted for mergers or takeovers after the deals are announced. This low-risk strategy has yielded an annualized return of 7% over the past ten years. That beats the S&P's return by less than half of a percentage point per year. Merger fund, a member of the Kiplinger 25, also invests in deal stocks. The fund (MERFX) has produced positive returns in 17 of the past 18 years (the only blemish occurred in 2002, when it lost 6%). First Eagle Overseas, a load fund that is closed to new investors, mitigates risk by investing in deeply undervalued foreign companies and stockpiling cash when opportunities are scarce.

Two small-company funds with long strings of positive returns are Aegis Value (AVALX) and FMC Strategic Value. If you include 2007, each fund has returned nine straight years of black ink, thanks to tiny gains in '02.


Selected funds that delivered positive total returns in at least 90% of calendar years, including the first half of 2007:

T. Rowe Price Cap Apprec 17/17
Gabelli ABC 14/14
First Eagle Overseas 14/14
FMC Strategic Value 9/9
Aegis Value 9/9
Third Ave Real Estate Value 9/9
Victory Diversified Stock 18/17
Merger fund 18/17
Permanent Port Agg Growth 17/16
Royce Premier 16/15
SOURCE: ©2007 Morningstar Inc.

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