The best performing diversified mutual funds so far in 2009

June 29, 12:20 PMBaltimore Financial ExaminerTom Taylor, CPA/PFS

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Be careful what you read in the headlines.

I've provided a list of the best peforming diversified mutual funds so far in 2009 according to Morningstar. The interesting thing about his chart is despite the great year to date performance, all but one, suffered huge losses in 2008 relative to its peer group.  Meaning, there were a lot of other funds with similar fund categories that performed better in 2008

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 SOURCE: data compiled by Morningstar

And the numbers can be misleading when looking at performace over the last year and a half.

Let's take the case of the Elite Growth & Income fund, ticker "ELGIX."  The fund is third on the list and is up an impressive 35.94%.  Very good performance relative to the S&P 500's roughly 2% increase so far this year (through Friday. 6/26/09).  However that's not nearly the whole story.  Chances are not many investors purchased shares in the Elite fund on 12/31/08 to only realize that significant gain.  Chances are investors have held the fund for some time in a 401k, IRA or taxable savings account and therefore suffered the -50.32% loss last year.  Some will tell you that up 36% this year and down 50% last year means you only lost 14%...not true and here's how you do that math.

Let's assume on 1/1/08 your account value in the Elite fund was $10,000 and you lost 50.32% of your money in 2008 (the actual peformance of the fund according to Morningstar).  Your account value on 12/31/08 would have been $4,968.  Now you continued to hold onto the fund and are happy with the 36% positive return so far this year.  Your account value after the rise is now $6,753...still down -32.47% since 1/1/08.

So be careful in reading the highlights on the investment pages this year.  There will be funds that impress with siginificant gains but be sure you know the whole story.  The best mutual funds have investment performance relative to their peer group that is better in bulland bear markets, so look at data over the last three, five and ten years as well.  An objective financial advisor can help you sift through the headlines and make sense of mutual fund performance.

Tom Taylor, CPA is a fee-only, independent Financial Planner and Certified Public Accountant and can be contacted at Thoma Capital Management or Taylor & Company in Towson, MD.  He is a member of NAPFA and the MACPA and AICPA.