Jul. 5--Despite Bernie Madoff and the 2007-08 stock market nightmare, long-term investors can sleep better, thanks to a second-quarter rally that catapulted the major indexes into positive territory for the first half of this year.

Stock mutual funds, where many Minnesota investors store their retirement funds, were led by small-stock funds and international funds, which tend to lead the market into rallies.

The best performing Minnesota-based stock funds included Wells Fargo Advantage Small Company Value, up 34 percent in the quarter; Sit Developing Markets Growth, up 33 percent and about 30 percent for the year; RiverSource Small Cap Advantage, up 32 percent and 11 percent for the quarter; and Gabelli Woodland Small Cap Value, managed by Minneapolis-based Woodland Partners, up 27 percent for the quarter and about 8 percent for the year. (All returns are preliminary from Morningside, the fund tracking firm.)

The consensus among several fund managers and prognosticators is that the market should continue to rise in the second half of 2009.

"Our view has been that we'd see an economic recovery in the second half of the year and that it was wise to build [more stock market] exposure into investor portfolios," said David Joy, equity market strategist at Ameriprise Financial, parent of the RiverSource Funds. "We think we're on track with the recovery and the question is how robust will it be and the extent to which equities will track that progress higher."

"The flip side is that the price of risk aversion has never been higher" because interest rates are so low for government bonds and bank certificates of deposit, Joy added.

Joy is sticking with his forecast of last December: The S&P will finish the year at about 1030. That would be a 16 percent rise for the year and a 50 percent recovery from the lows of March.

In January, Ameriprise launched the Riversource Recovery and Infrastructure Fund.

"We like U.S. stocks," Joy said. "But you need to be targeted. The infrastructure play is due partly to the U.S. economic stimulus package, which is actually a fairly small part of a larger movement in the industrial, materials and energy stocks. Our other major theme is technology. ...We like the big franchises: Microsoft, Oracle, Cisco and Intel. There has been a long period of business under-invesment."

Tempered optimism

Liz Ann Sonders, chief investment officer at Charles Schwab & Co., noted last week that the stock market has consolidated its spring gains in recent weeks, basically treading water.