U.S. stock funds slowly regaining ground

By John Waggoner, USA TODAY
Updated 3h 41m ago |

A growing number of stock mutual funds are back to where they were before the bear market began in October 2007 — but most still have a ways to go.

Of the 4,299 stock funds tracked by Lipper, 1,237 now show a gain since Oct. 9, 2007, when the Standard & Poor's 500 hit its peak of 1565.

Throw out specialized and international funds, and 607 of 2,290 diversified U.S. stock funds have passed their 2007 peak. "It shows how difficult it is to get back to break-even after a mega-meltdown," says Sam Stovall, chief investment strategist for Standard & Poor's. He defines a mega-meltdown as a loss of 40% or more.

The S&P 500 tumbled 57% from its 2007 high through March 9, 2009 — the worst bear market since the Great Depression. The index has nearly doubled from its bottom, but that's still not enough to erase its losses. A 57% loss requires a 133% gain just to get back to even.

Fund categories that have recovered the fastest:

•Precious metals funds. They're up an average 47% since the S&P 500 peaked. Propelled by inflation fears and a declining dollar, gold has soared to $1,409.30 an ounce from $737.90 on Oct. 9, 2007. But the biggest winner in the precious metals category has been the iShares Silver exchange traded fund, up 148% since the S&P 500's top.

•Technology funds. The poster children for the 2000-2002 bear market, tech funds have been propelled by the booming market for wireless telecommunications — and by Apple, which now accounts for nearly 20% of the tech-heavy Nasdaq 100.

•Small- and midcap funds. Small-company stocks fare well when interest rates are low, and rates don't get much lower. The key fed funds rate is between 0% and 0.25%.

Types of funds that have struggled the most:

•Bear market funds. These funds rise when the stock market falls, and the category soared 100% in the bear market. But they have fallen 64% in the most recent bull market.

•Financial services funds. The credit crisis centered on banks of all stripes, and most were severely punished by the market. The average financial services fund plunged 70% in the bear market; they're down 36% since October 2007.

•Value funds. Stalwart bargain-hunters fared well during the tech wreck at the beginning of the last decade. But financials are nearly a third of the S&P 500 large-cap value index. "Value in some ways is another name for financials," Stovall says. Large-company value funds are still down 16% from the market's top.

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