Loading...
 

The stock market finished 2010 on a strong note. It rose 10.8% in the fourth quarter, including a strong total return of 6.7% for the month of December. The Federal Reserve is still trying to keep rates low and liquidity high. This effort, along with Federal Reserve Chairman Bernanke’s suggestion that the Fed is prepared to take additional measures, helped the U.S. stock market climb higher in the fourth quarter.

European stocks did not perform as well during the same three-month period ended December 31, 2010, since there has not been a resolution to the debt problems in Greece, Ireland, Spain, or Portugal. Nevertheless, the MSCI EAFE Index reported a total return of 6.2% in the final three-month period of 2010.

If the stock market remains a leading economic indicator, it is telling us that the U.S. economy should continue to grow. Note that the market’s recent ups and downs give further credence to the strategy of dollar-cost averaging, since no one can expect to pick the perfect point in time to commit new funds.

About half of the equity funds listed in the nearby table met or exceeded the performance of their respective benchmarks (S&P 500, Russell 3000, MSCI EAFE, and MSCI WORLD) in the fourth quarter.  Additionally, over half the funds on the table below met or exceeded their benchmarks in the second half of 2010.
 
One excellent six-month performer is the EPH China A Fund (EPHCX). It reported a total return of 30.5% in the second half of 2010, outpacing most other funds listed on the table below by about five to six percentage points during that timeframe. This fund, a Pacific Equity fund, seeks long-term capital appreciation by investing at least 80% of its assets in non-U.S. stocks of companies of all market capitalizations that are economically tied to China. Subscribers should note that this fund began trading on July 31, 2009. Consequently, this short history prevents Value Line from assigning it Ranks.

Another fund that performed very well in the fourth quarter and the back half of 2010 is Vanguard Total Stock Market Index Fund (VTSMX).  This fund is designed to give investors exposure to the entire U.S. stock market, including small-, mid-, and large-cap growth and value issues. The fund employs a passive management strategy. During the past six months, this strategy provided fund shareholders with very good returns. It currently has an average Overall Rank and an average Risk Rank, making it a good choice for a variety of investors.

A third fund that outperformed its peers over the three and six months ended December 31, 2010 is Franklin Income Fund A (FKINX). This fund invests in a diversified portfolio of debt and equity securities. As of September 30, 2010, the fund had about 60% of its assets in corporate bonds and preferred securities and about 30% in common equities, with the balance in cash. The fund has a flexible, value-oriented investment philosophy seeking income and long-term capital appreciation potential by investing in dividend-paying stocks, convertible securities, and bonds. Its recent performance showed it can provide an attractive alternative to investing in a traditional portfolio of bonds. It currently has a better-than-average Overall Rank and an above-average Risk Rank, making it a suitable choice for investors seeking higher performance with less risk.

 

 

Results

Through

Dec. 31

2010

FUND NAME/

TICKER

Fund

Size

(in

billions)

3 Mos

6 Mos

1 year

5 years

American Funds Growth Fund of America A

AGTHX 

$161

10.3%

22.3%

12.3%

2.5%

 

 

Vanguard Total Stock Market Index

VTSMX 

132

11.7

24.5

17.1

2.9

American Funds EuroPacific Growth A

AEPGX 

109

5.7

23.5

9.4

5.6

Vanguard 500 Index

VFINX 

102

10.7

23.2

14.9

2.4

American Funds Capital World Growth & Income A

CWGIX 

81

5.1

22.8

7.7

4.8

American Funds Capital Income Builder A

CAIBX 

79

3.6

15.8

8.7

4.4

EPH China A

EPHCX 

75

9.8

30.5

23.0

 

Fidelity Contrafund

FCNTX 

75

9.5

22.8

16.9

4.9

American Funds Investment Company of America A

AIVSX 

62

8.7

21.4

10.9

2.5

American Funds Income Fund of America A

AMECX 

68

5.0

16.1

12.0

2.8

Dodge & Cox Stock

DODGX 

40

11.2

23.2

13.5

0.1

American Funds Washington Mutual A

AWSHX 

51

8.6

21.6

13.3

2.1

American Funds New PerspectiveA

ANWPX 

46

8.9

24.3

12.8

6.0

American Funds Fundamental Investors A

ANCFX 

50

10.2

23.5

14.1

4.5

Franklin Income A

FKINX 

58

5.1

13.4

12.9

5.8

S&P 500 Index

 

10.8

23.3

15.1

2.2

Russell 3000

 

11.6

24.5

16.9

2.7

MSCI EAFE

 

6.2

23.0

4.9

0.2

MSCI WORLD

 

8.6

22.9

9.6

0.6

Barclays Aggregate Bond

 

-1.3

1.2

6.6

5.6

Barclays High Yield Bond

 

3.2

10.2

15.1

9.6