Funds with smallest 3- vs. 5-year return gaps


The gaps between stock mutual funds’ 3- and 5-year returns are unusually large now, three years after the market hit bottom. The 3- and 5-year numbers are common benchmarks for tracking fund performance, so it’s important to understand what’s behind the big disparities.

The gaps are wide because funds are now wiping their 3-year records clean of the stock meltdown that ended on March 9, 2009. Five-year records look comparatively bad because they include the 17-month period when stocks tumbled 57 percent between October 2007 and March 2009.

For some perspective, gaps between 3- and 5-year annualized returns currently average 26 percentage points for U.S. diversified stock funds, according to Morningstar. Example: A fund returned an average 28 percent a year over the latest 3-year period, and 2 percent over five years.

Funds whose managers have succeeded in delivering less-volatile returns than the market have the smallest gaps between their 3- and 5-year numbers.

Below are the 10 U.S. diversified stock funds with the smallest gaps, for the periods ended March 7, according to Morningstar. Funds with fewer than $100 million in assets are excluded.