Kiplinger's Personal Finance says momentum funds made a big comeback last year.

Momentum investors buy stocks that have already gone up, betting that they will go up some more.

Though this may sound "like mindlessly chasing the hottest thing," there are actually "sound academic underpinnings to the practice," the magazine said.

"Behavioral-finance studies show that investors tend to underestimate the magnitude of change. So investors often dont anticipate that more good news (or more bad news) is on the way because they fail to recognize how much has changed," Kipligner's wrote.

Three that the magazine recommends investors to consider, from the most cautious to the most aggressive: the Brandywine Fund, the American Century Vista Fund and the Vanguard Growth Equity Fund.

Hedge Investors Keep Coming Back for More

After so many hedge funds crashed and burned, why do individual investors keep coming back for more?

"Because they believe the very best hedge fund managers can provide market-beating performance over time without fiery wrecks, and that they provide an important alternative to traditional market returns," according to Barron's, which lists the top 75 funds on the market.

Topping the list was the Passport II Global Hedge Fund, a San Francisco fund managed by John Burbank. "Playing the short side of the subprime mess was definitely a winning strategy" for this fund, the magazine said.

The fund posted a 65.5% three-year annual return rate, including a 219.4% rate for last year.

(c) 2008 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.