The Sharpe ratio measures the performance of a fund adjusted for risk. Each of the five measures is given equal weight.
Like Mulholland, the managers of other winning funds in the ranking capitalized on the steep decline in 2008 and 2009 by loading up on a range of investments, from homebuilding and bank stocks to risky mortgages.
Homebuilder Bargains
For Chuck Myers, manager of the $5.3 billion Fidelity Small Cap Discovery Fund, the biggest bargains were homebuilders, which in 2008 were selling for less than the value of the land on their balance sheets, he says. Buying them helped Myers’ fund secure the top spot in the small-cap equity category in the ranking, with a 25.8 percent return for one year and an average return of 15.6 percent over five years. The fund was also No. 2 in diversified U.S. equities.
“I wanted to position myself in stocks that were the cheapest possible compared to normal earnings,” Myers, 37, says.
The rally in stocks, with the Dow Jones Industrial Average exceeding its 2007 all-time high in early March, has reduced the number of such companies, he says.
Investors rewarded Small Cap Discovery with $1.3 billion in new assets in 2012. In January, Fidelity closed the fund to new investors.
International stocks followed their U.S. counterparts skyward beginning in 2009, helping Bill Nygren’s $785 million Oakmark Global Select Fund tie for No. 1 in the global equities list.
Not If But When
“We knew it was not a question of if but when the global economy would recover,” says Nygren, 54, who runs the fund with David Herro.