Good Funds in Bad Markets

These managers have stellar track records, delivering strong gains in weak categories.

- John Waggoner

IF YOU’RE LOOKING FOR A STOCK MUTUAL fund that will rise when all others fall, you’re probably disappointed you haven’t found that pot of gold under a rainbow, either. A diversified stock fund is going to fall when the market does. But what if you could find a fund manager who does well consistently, even in corners of the market that seem perennially cursed? Not a pot of gold under a rainbow, perhaps, but such managers are certainly rare.

Among the most snake-bitten areas of the market are value funds, which look for stocks that are cheap relative to earnings and other measures. Even worse off are international value funds, which combine two struggling categories. Small-company stocks have lagged their bigger brethren for years, and emerging markets have been intermittently awful. Fund managers in Japan have worked in a moribund market for decades.

We found five funds that have fared well in those tough markets, on the theory that stock pickers who shine in the face of long-standing adversity are worth checking out. Moreover, corners of the market that have long been out of favor may be ready to turn, or at least are likely to lose less if the market overall heads down. Returns and other data are through June 14.

AMERICAN FUNDS NEW WORLD FUND (SYMBOL NWFFX)

Emerging-markets funds have been more disappointing than a piñata filled with toothbrushes. MSCI’s emerging-markets index has gained an average of 2.5% a year for the past decade, compared with 3.3% for international developed markets and 14.2% for Standard & Poor’s 500-stock index. But New World has returned a compelling 7.2% annualized, beating 92% of its peers.