The 2010 stock market may be better remembered by investors for its volatility and uncertainty rather than its overall price movement. Year-to-date the broader S&P 500 index has added about 11%, but most of those gains have come only recently.

 Many of the top funds that have outperformed the stock market as a whole have been focused on specific sectors. And in this uncertain environment, it’s not surprising that precious metal funds led the pack in terms of absolute returns. Of the top ten performing funds, five of the group were gold funds, with the Dynamic Gold & Precious Metals I (MUTF: DWGOX) coming in on top by posting a whopping YTD return of 66.99%.  This fund in the industrial metals category concentrated 90% of its portfolio in non-U.S. stocks, with its largest holdings in Perseus Mining Ltd., Red Back Mining, Osisko Mining, Andean Resources and San Gold Corp. This fund has been managed by Robert Cohen since April 2009.  

Of the top 10, the tenth ranked fund was also a gold fund, the U.S. Global Investors World Precious Minerals (MUTF: UNWPX), which generated a return of 39.67%.

By contrast, the best performing fund in the equity category was a mid-cap growth fund, Delaware Pooled Focus (MUTF: DCGTX), bringing a return of 34.11%.

Looking Ahead to 2011

While the top performing funds of 2010 present the best-of-the-best, the next few quarters going into 2011 look much more problematic, both domestically and internationally.

According to PIMCO research, expectations of 10% annualized yields in stocks and bonds should be considered a thing of the past. PIMCO’s real GDP estimates for Q4 2010 to Q3 2011 are in the range of 1.5% to 2% from the current GDP of 2.6%.  Similarly, the UK, China, Europe, Japan, and BRIC nations are all projected to suffer GDP declines for the same future period.

Domestically, U.S. prospects will be “one of muted growth overall, which should slow as public finances deteriorate.”  There also are few signs that the current recession will be corrected soon. “Private sector credit creation remains hampered and the banking system will become more utility-like,” according to PIMCO.

From a macro perspective, PIMCO said there will continue to be “a protracted need for balance sheet rehabilitation, (combined with) accelerated migration of growth and wealth dynamics to systemically important emerging economies and relatively weak global governance.” All this is another way of saying that emerging economies which are in the process of building their middle class will continue to show better growth prospects than developing nations with significant deficit problems.

So with that in mind, it may be time to seriously investigate specific sub-sectors, including what many experts seem to prefer: emerging market funds, in well-governed, financially stable nations for 2011.

Here are the top performing mutual funds for the first 11 months of 2010 and their Year-To-Date Return. (These numbers do not include the Expense Ratios for the funds which can vary widely).

Dynamic Gold & Precious Metals I (DWGOX) 66.99%

Tocqueville Gold (TGLDX) 50.77%               

Dynamic U.S. Growth I (DWUGX) 48.33%               

Profunds Intranet UltraSector Inv. (INPIX) 47.20%               

Oppenheimer Gold & Special Mat. (OPGSX) 46.95%               

Van Eck Intl. Inv. Gold (INIVX) 45.30%               

Encompass (ENCPX) 43.74%                           

Berkshire Focus (BFOCX) 42.96%               

Saratoga Technology & Comm A (STPAX) 40.91%               

U.S. Global Investors Wld Prec Minerals (UNWPX) 39.67%               

The top performing U.S. Equity funds by category:

Small Cap Value: Homestead Small Co. (HSCSX)  24.24%.

Mid Cap Value:  JP Morgan Mid Cap Val. I (FLMVX) 16.10%

Large Cap Value: ING Corp. Ldrs Trust Series B (LEXCX) 14.95%

Mid Cap Growth: Delaware Pooled Focus (DCGTX) 34.11%

Small Cap Growth: Waddell & Reed Small Cap Y (WRSYX) 30.33%

Large Cap Growth: Marsico Flexible Cap.  (MFCFX) 27.08%  

Large Cap Blend:  PIMCO Fndmntl Index Plus Tr. I (PXTIX) 21.89% 

Mid Cap Blend: Scout Mid-Cap (UMBMX)  20.28%

Small Cap Blend:  PIMCO Small Cap Stock (PSCSX) 29.50%  

 The top International funds by region:

China Region: Aberdeen China Opp. (GOPAX)  24.30%

Europe Region: Royce European Smaller Co. (RISCX)  24.19%

Pacific Asia ex-Japan: Invesco Asia Pacific Growth (ASIYX) 23.50%

Diversified Pacific: Matthews Asia Pacific Inv. (MPACX) 22.04%

Diversified Emerging: Virtus Emerging Mkts. A  (HEMZX) 21.59%

Global Real Estate: Principal Glbl. Real Estate (POSIX) 21.39%

Foreign Large Growth: Thornburg Intl. Growth (TINFX) 20.89%

Source: Morningstar