A Booby-Prize-Winning Fund

Forbes magazine recently awarded its "Booby Prize" to the mutual fund that impressed them the least in the past year: the Managers 20 Fund (MTWAX), run by Oak Associates since 2000. As an occasional connoisseur of bad movies (and even bad food), I was excited at the thought of learning about a real dog of a fund. But what I found wasn't quite what I expected.

From Morningstar, I discovered that this fund isn't focused on just 20 investments, as its name suggests. Its most recent list of holdings featured 23 stocks and no bonds. (The top 10 holdings make up a little more than half the fund's value.) The annual turnover was just 17%, which is usually a good thing, meaning that the managers aren't impatiently jumping into and out of various holdings. Being a focused fund is often a good thing as well. Funds invested in several hundred different securities aren't likely to surge if a few of their holdings do.

So what holdings, exactly, did this fund possess? Here's what I found:

Other top holdings included eBay, Pfizer, TevaPharmaceuticals, Medtronic, and Amazon.com. The holdings collectively reveal an inclination toward technology, health care, and biotech, which can all be more volatile than most industries.

That instability is evident in the fund's performance. Check out these returns:

• 1999: 71%
• 2000: (26%)
• 2001: (48%)
• 2002: (43%)
• 2003: 56%
• 2004: (5%)
• 2005: (5%)
• 2006 (through 9/30/06): (7%)

Now I see why the Booby Prize is sitting on these managers' desks. That's a depressing record.

The fund's stats only get worse. There's a 5.75% load, meaning that you'll lose nearly 6% immediately, just upon investing in it. The expense ratio (read: annual fee) is a significant 1.58%, too.

Learn from a loser
Note that the Managers 20 Fund seems to be doing some things right -- focusing on relatively few investments (presumably the managers' best ideas), keeping turnover low, and choosing widely respected and admired companies. I'm a shareholder in Amazon.com, eBay, and Pfizer, and I've read plenty of positive things about many other holdings in the fund.

So what happened? Well, I suspect that the fund bought into a bunch of good companies -- at bad prices. If you bought shares of Cisco in 2000, for example, you probably paid a price per share in the $60s. They've appreciated respectably lately, but the last time I checked, they were still below $25. It's not enough to invest in the best companies if you don't care about the prices at which you purchase them. Doing so indiscriminately can be catastrophic.

A silver lining?
Is there any good news? Well, yes. The fund appears to be closed to new investors. Phew!

Over at FundAlarm.com, industry watchdog Roy Weitz recently noted that he'd singled out the fund for its poor performance before Forbes did, and he added:

This month, Managers 20 has the dubious distinction of being the worst (i.e., most alarming) large-cap fund in FundAlarm's database -- more alarming, even, than several leveraged funds in the same category.. But it looks like somebody at Managers finally got the message: The fund is no longer accepting new money, and it will be liquidated at the end of November.. How it was allowed to get this far is another question.

Your options
Still, if this fund and its holdings intrigue you, there are a few things you can do. For one thing, you can read about most of its component companies here in Fooldom. Here are some articles, for example:

• "Considering a Costly Cognizant" by Bobby Shethia
• "Nothing Generic About Teva's Performance" by Stephen Simpson
• "Google's Growing Index" by Jack Uldrich

You could also simply use the Managers 20 Fund's list of holdings as a source of ideas. Research the firms further and see which ones, if any, inspire enough confidence for investment. Even if you buy into all 23 stocks on your own (not recommended!), you can come out ahead, since you won't be paying an annual expense fee or a sales load.

Here's one last alternative: Forget about this fund, and look at long-term winners, not losers, among the wide universe of funds. There are thousands of funds out there, and most don't even match the overall market's performance. But some outperform the market handily and have done so for a long time, with reasonable fees and no loads. You can find them on your own -- or with our help.

Our Motley Fool Champion Funds newsletter service has racked up an impressive record by recommending top-notch funds every month. Analyst Shannon Zimmerman's August recommendation sports a 10-year average annual return of 14%. At that rate, $5,000 would turn into $255,000 in 30 years. Try the newsletter for free for a month to access all past issues, and see which funds Shannon has recommended -- and why. On average, his picks have gained an average of 23% vs. 16% for benchmark indexes. A few of his last recommendations have fallen since they were recommended, but their current lower prices actually make them more compelling to me.

Charles Schwab, Amazon.com, and eBay are Motley Fool Stock Advisor recommendations, and Pfizer is a Motley Fool Inside Value pick. To see why, try either newsletter free for 30 days.

Longtime Fool contributor Selena Maranjian 's favorite discussion boards include Book Club, Eclectic Library, Television Banter, and Card & Board Games. She owns shares of eBay, Pfizer, and Amazon.com. For more about Selena, view her bio and her profile. You might also be interested in these books she has written or co-written: The Motley Fool Money Guide and The Motley Fool Investment Guide for Teens . The Motley Fool is Fools writing for Fools.