Mutual Fund Market Beaters

First things first: I am a dyed-in-the-wool long-term investor, the kind of guy who buys to hold -- and hold and hold. Indeed, with an investment timeline of at least 20 years, a mere 16 months -- which is approximately how long the Fool's Champion Funds newsletter service has been up and running -- is just a drop in the proverbial bucket.

Still, since Champion Funds is my puppy, I can't help but be pleased by the fine start we've gotten off to out of the gates. To wit: Every stock fund I've recommended has made money for shareholders, and taken collectively, our picks are beating the market by just over six percentage points. Since opening for business, in fact, we've nearly doubled up on the S&P's return.

What's more, we've notched that record with a varied assortment of funds. We have growth-oriented Champs that invest in the likes of eBay (Nasdaq: EBAY  ) , Yahoo! (Nasdaq: YHOO  ) , Dell (Nasdaq: DELL  ) , and Intel (Nasdaq: INTC  ) , for example, and we've also trolled for value-focused keepers that favor such names as ExxonMobil (NYSE: XOM  ) , Bank of America (NYSE: BAC  ) , and Hewlett-Packard (NYSE: HPQ  ) . We've zeroed in on a socially responsible stalwart, and have uncovered some bond-fund standouts, too.

Not too shabby, eh?
Will this winning streak last? That's impossible to say, of course. As every investor who's ever read a prospectus surely knows, past performance is no guarantee of future results.

What I do know, however, is that by applying a consistent and rigorous set of criteria to the vast universe of mutual funds, it's possible to tilt the odds of beating the market in your favor by identifying those select funds -- we call 'em Champs -- that have what it takes to get the job done over the next three to five years and beyond.

With that in mind, I've outlined in recent commentaries two attributes -- a cheap price tag and a sensible stock-picking strategy -- that all prospective investors should place high on their mutual fund shopping lists. And in an upcoming article, I'll focus on a third -- managerial tenure -- that's another key ingredient in any fund's recipe for success.

Intelligent asset allocation
But simply cherry-picking individual winners is only part of a fund investor's job -- and I'd argue that it's not even the first part. Well before you fire off a check to a fund company, you should have an asset-allocation game plan in place. That is, given your timeline and investing temperament, you need to decide how much of your hard-earned moola you want to allocate to the market's various cap ranges (large, mid, and small) and styles (growth, value, and core).

Large-cap stocks, for example, tend to be less volatile than smaller fish and might therefore pack more appeal for conservative investors. Similarly, value funds can provide what investing luminary Ben Graham called a margin of safety, at least relative to their growth-focused counterparts. Because growth funds generally run with higher average valuation metrics -- i.e., such measurements as price-to-earnings, price-to-cash flow, and price-to-book value -- they have farther to fall when the market hits the skids.

At the same time, if you're willing to tolerate more bumps in the road in exchange for potentially greater rewards, those very funds may be just what you're looking for.

The perfect portfolio?
Ultimately, of course, the perfect portfolio is in the eye of the shareholder, but to help get you started on the road to intelligent asset allocation, we recently rolled out our Champion Funds model portfolios. These come in three flavors -- Aggressive, Moderate, and Conservative -- and each offers high-quality exposure to a broad swath of the market.

Diversification, after all, is what savvy investors want and need, and that's one of the many reasons I think mutual funds -- which make diversifying a cinch -- are just about the perfect retirement savings vehicle for long-term types. A thoughtfully assembled portfolio of top-drawer picks can help keep the road to retirement relatively smooth.

That's a long and winding road, of course, but as we're seeing with the performance of our Champion Funds picks right now, getting to that destination can be half the fun. Click here to take the newsletter for a risk-free test-drive and see for yourself.

Shannon Zimmerman heads up the Fool's Champion Funds newsletter service and doesn't own any of the securities mentioned above. The Fool is investors writing for investors, and has a strict disclosure policy.


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