7 surprisingly good funds in 2012
Some contrarian plays have paid off, and one has bounced back.
By Tom Taulli
Well, at least one area in the financial world has seen growth for the past few years: negative news.
Unemployment continues to be bleak. Europe is on the verge of implosion. China is slowing down. So is it any wonder that average Joes have been staying away from the markets?
Still, if you check out the mutual fund industry, you can find a few signs of hope. Even amid the markets' volatility, a number of portfolio managers have generated impressive returns. Here's a look at seven funds that have been surprisingly strong performers this year.
Nile Pan Africa A
When you're thinking about where in the world you want to invest, Africa is not a name that comes up often. But if you look at the facts, there are definitely opportunities. Africa is the world's second-largest continent (behind Asia) in terms of land area and population. Even though poverty is still a huge problem, Africa has seen steady gains in economic growth for decades. The continent also has plentiful resources, such as oil and platinum.
With few analysts covering those markets, an astute investor can uncover some attractive investments. This has been the case with the Nile Pan Africa Fund (NAFAX), which is up about 21% for 2012. The head of the fund, Larry Seruma, scours the 53 nations in Africa to find solid companies, and he has been savvy in finding smaller growth plays.
Fidelity Advisor Biotechnology I
The biotech industry hasn't had it easy. Despite continued innovation in the field as biotechs continue to attack big-ticket ailments like HIV/AIDS, cancer, Alzheimer's and diabetes, the IPO market has been dormant. Venture capitalists have been more interested in finding the next Facebook (FB) than the creator of the next great cure.
Still, there's plenty of sizzle in the space. One of the top funds for the industry is the Fidelity Advisor Biotechnology Fund (FBTIX), which has enjoyed a scorching 31% so far this year. It's no fluke -- FBTIX has averaged 24% gains annually in the past three years.
And there are some attractive long-term trends ahead. A big one: Traditional pharma companies continue to lose patent protection on a variety of mega-drugs, and many don't have enough treatment candidates to replace the shortfall. The only viable option for these companies is to buy smaller biotechs.
American Century Real Estate A
Who thought real estate was going to be a hot area for investors this year? Hardly anyone. But the market is starting to look interesting, helped by low mortgage rates and little increase in supply since the bust in 2006.
These trends are helping to boost the performance of the American Century Real Estate Fund (AREEX). AREEX holds companies like Simon Property Group (SPG), Vornado Realty Trust (VNO) and Equity Residential (EQR), and it has posted a return of 15% this year.
JHancock Financial Industries A
After the massive financial collapse and subsequent TARP bailouts, investors still have plenty of reason to fear the banking and financial industry.
So far this year, the fund has posted a return of 16%, and it has returned an annual average of 12% for the past three years.
BlackRock High Yield Bond
While market uncertainty has put Treasurys and defensive stocks in high demand this year, yield-champion junk bonds have gotten some love, too. On their own, junk bonds can seem a little scary, but they make a great income option as part of a diversified portfolio.
Take a look at the BlackRock High Yield Bond Fund (BRHYX), which has about $7.6 billion in assets. The fund's portfolio manager, James Keenan, is a skilled number cruncher and knows how to evaluate credit risk, and he has steered BRHYX to returns of 8.5% year to date.
Columbia Acorn European I
Investing in Europe might be one of the most contrarian moves this year, but it has panned out for the Columbia Acorn European Fund (CAFIX). So far in 2012, CAFIX's gain is a healthy 9%.
The fund focuses on deep fundamental analysis. So even though Europe has had more than its share of calamity, CAFIX's management has found companies that can thrive in any environment. The fund also will invest in smaller companies and even IPOs.
Total Return Fund
When it comes to bond investing, PIMCO's Bill Gross is the grand master. But last year his performance faltered as he missed the big rally in Treasurys. This resulted in the PIMCO Total Return Fund's (PTTRX) finishing flat and dropping to the bottom third of its peers, and inevitably the media clobbered him.
This year Gross has turned the ship around. The Total Return Fund has made an impressive comeback, with a gain of 5.75%, putting the fund above 96% of its peers.
Tom Taulli runs the InvestorPlace blog IPO Playbook, and is the author of the upcoming book How to Create the Next Facebook: Seeing Your Startup Through, from Idea to IPO. Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned securities.
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Serious issues like drought and the deterioration of the developed world spell opportunity for this industry leader.
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