At the halfway mark of the year, a handful of mutual funds have managed to top Morningstar's rankings with total returns to date of over 22%, while at the other end of the spectrum, some funds slipped well past -15% in total returns.

For either the best fund or the worst, how you couch the year's performance to date is key, says Dan Sondhelm, senior vice president at SunStar Strategic.

"It's really important for an investor to understand the story of the firm, what are they trying to accomplish, what is their discipline and repeatable process, how are they making money now or how are they protecting on the downside now - because if a firm is selling process then it's not about performance."

The story of China, Japan and Russia plays out at both ends of the fund performance spectrum, says A.J. D'Asaro, an analyst at Morningstar.

"Just as we saw the leveraged funds on Japan and China in the best funds, you get the ultra-short Japan, ultra-short China ending up in the worst performers."

Four healthcare funds also land on the best-performing list, largely because of biotech and not the healthcare sector as a whole, although that sector has performed considerably well with a 9.3% overall return, D'Asaro adds.

Some of the worst-off funds in the first half of the year were hit by rising interest rates, the global decline in oil prices and commodities, and even when the Swiss franc de-pegged from the euro.

"Bear market frequently seems to be an underperforming category, and that makes sense because the funds are shorting different markets," D'Asaro says. "That's one I think I see the most of in underperforming categories."

MUCH UNCERTAINTY

Funds performing well acknowledge there is much uncertainty in the market.

"If something big or dramatic happens, you can make money with respect of the direction," says David Miller, a portfolio manager at Catalyst Macro Strategy Fund. "I just think this is a very good market to be long volatility or long options, which is generally what our strategy is and why we have been doing so well very recently."

The marketing approach for the fund, which ranked fifth best, is simple, Miller says.

"We follow the story and try to help investors find ways they can diversify their portfolio, so they're not just betting on equities going up or making money off of funds," he says. "You can get a much better portfolio or risk adjuster turns if you include some alternatives."

The managers at Footprint Discover Value fund, among the bottom performers in the first half of the year, are similarly introspective.

"A couple of our positions, which are more heavily weighted positions, have been particularly early and somewhat disappointing fundamentally," says Stephen Lococo, a portfolio manager at the Omaha, Neb.-based firm.

"Our theme has been three-to-five years. That's our sweet spot. Unfortunately we have to meet up when somebody looks at what our performance has been like.

"This is something that has happened before with our money management style. A lot of this has to do with it being a new fund and trying to get new assets at the same time."

Sondhelm says ending up in the worst funds list is not the end of the world.

"If you're ProFunds, you're supposed to do that, and if you're any of these other managers it's likely that maybe they had a lousy six months for some reason, but it's very likely that the story is still very strong.

"For example, the same portfolio manager who has been there for 10 years, with same strategy and he is sticking to his guns. Maybe the longer term performance is also strong. But if you have your story intact and investors understand your story, you're okay.

"A lot of firms go quiet when they hear this and avoid the issue, others proactively communicate to talk about why the fund has underperformed."

BRAND THINKING

And if a fund is performing well, he advises firms to be their own promoters, scheduling sessions with the media, and engaging in a digital marketing campaign, assuming the firm has a good website to have traffic go to.

"That's why it's important that you always have to be thinking about your brand, your story, your visibility and your credibility, whether your funds are in favor or not," he says.

Remember that markets are cyclical, he adds. "Funds are always in and out of favor, and it's unlikely the same fund will be in favor forever, which means you have to be able to jump on these opportunities when a fund is outperforming."

"Same on the bottom -- a fund that is average or below average is at some point going to have their day in the sun. And they'll be the new winner." 

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