Investors Can Have It All

We currently have one car in our family, which spawns somewhat of a hectic commuting schedule for us.

This morning, for example, I shuttled my wife to work at 7:00, dropped off kid No. 1 at preschool around 8:30, and then raced across town to have kid No. 2 in day care by 9:00. Later, I picked them all up in reverse order.

In between, I somehow managed to squeeze in a few hours of work -- and I get to do it all over again tomorrow. Who would intentionally subject themselves to this hectic daily routine? I'll tell you: Someone who hates shopping for a new car (mine is on life support).

Would you like window tinting?
What exactly is so torturous about car shopping? Could it be the pushy salesmen, or the inevitable haggling, or the thought of borrowing (and paying interest on) a huge sum of money to purchase a depreciating asset?

All that got me thinking: Given the breadth and complexities of the mutual fund industry, are some people equally frustrated when it comes to selecting a mutual fund? Rather than a slick car salesman pointing out five-star crash ratings, investors might face a fast-talking broker discussing low volatility. In either case, a purchase can definitely be intimidating.

Kicking the tires
Mutual funds, like automobiles, come in an almost endless variety of makes, models, and colors. However, that doesn't mean you have to look under the hood of each and every one to find a few that stand out from the crowd. This quick, five-point inspection process will usually give you a pretty good idea about whether you might want to take a particular fund out for a test drive.

Cost: Excessive fees are a difficult handicap to overcome, eroding the returns of even the best of managers. Remember, just a few hundredths of a point can add or subtract thousands of dollars over time, so avoid funds that will eat into your profits and focus on those that carry below average expense ratios.

Relative performance: We've all heard it before -- past performance is not necessarily indicative of future results. While that disclaimer is absolutely true in the strictest sense, it shouldn't always be followed to the letter. If a Mustang outruns a minivan ten straight times, there's good reason to believe it will continue doing so in the future. Similarly, stick with managers who have proven they can consistently outrun their peers.

Managerial tenure: Once you've uncovered a fund with great 10-year performance figures, check to see that the current manager is the same one who actually earned those gains, not an untested rookie who just got called up to the major leagues of money management.

Volatility: When putting the magnifying glass to dozens of top-performing funds, it's easy to spot a common thread among the industry's elite: most great funds earned their ranking not by making the most money during up markets, but losing the least during down markets. Focus on stable performers that can give you a smoother ride.

Portfolio composition: When investing in a mutual fund, we hand over the day-to-day investing decisions to a professional. Therefore, I find it extremely informative to know what some of those decisions are. From portfolio concentration to sector weightings, a closer examination of the portfolio will reveal quite a bit about how a manager steers his or her fund.

A look at the interior
To be sure, mutual fund investors have plenty of other considerations, from asset base to tax efficiency. However, among a sprawling field of more than 7,000 mutual funds, this checklist is a simple way to separate the wheat from the chaff.

Let's put the theory into practice by taking a closer look at a fund that scores highly in each of these five categories -- Mairs & Power Growth:

As the table shows, Mairs & Power Growth has been one of the top-performing large-cap blend funds over the past decade. Lead manager Bill Frels, an investment pro for nearly four decades, has been at the helm for most of that span. Since 1996, the fund has only posted one calendar-year loss, while racking up an impressive 12.6% annualized gain. That easily outpaces the S&P 500 by nearly four percentage points and is good enough to secure a spot in the top 3% of the category.

Frels has accomplished that feat by anchoring the portfolio with market-thumping blue-chip giants like General Electric (NYSE:GE), Johnson & Johnson (NYSE:JNJ), and 3M (NYSE:MMM). However, he isn't handcuffed by a narrow investment objective, and isn't afraid of venturing into mid- or even small-cap territory for promising stocks.

In fact, electronic payment processor eFunds (NYSE:EFD) has been one of the fund's biggest gainers over the past year.

And considering solid companies like retailer Target (NYSE:TGT) have occupied a spot in the portfolio for more than ten years, it's not surprising to see that the fund carries an extremely low portfolio turnover of 3% -- a figure that should appeal to patient, buy-and-hold investors.

Finally, despite a relatively concentrated portfolio, Mairs & Power Growth has also encountered fewer bumps along the way than its average rival -- making its risk-adjusted returns look even more dominant. As might be expected, the fund has held its own in up markets, but has truly shone when times were tough. During the last bear market, from March 2002 through April 2003, it only slipped 9.7%; the average large-cap blend fund tumbled 17.5%.

And for all this, investors must only cough up just 0.70% in annual expenses. Judging by my scorecard, that makes five checks in five categories.

Before you sign anything .
In the car world, consumers must learn to prioritize. We might want something with the raw speed and performance of a sports car, the towing capacity of a truck, the cargo space of an SUV, and the amenities of a luxury sedan -- but such a vehicle just doesn't exist.

However, mutual fund investors can have it all: low costs, proven performance, experienced managers, below-average volatility, and an investment philosophy that coincides with their own. In fact, Mairs & Power Growth just might fit that description for some.

If you aren't crazy about the idea of spending a perfectly good Saturday shopping for mutual funds, Motley Fool Champion Funds has already done all the legwork.

After going through Shannon Zimmerman's rigorous inspection process, only the top funds in each asset class are left standing. To take a peek at all 40 sleek beauties on his showroom floor, step inside and look around for a while. It's completely free -- and no salesman will hassle you.

Fool contributor Nathan Slaughter owns none of the companies mentioned. Johnson & Johnson is an Income Investor choice. 3M is an Inside Value pick. The Fool has a disclosure policy.