The Market's 10 Best Funds

We're going to trot out the gloomy numbers again:

  • More than 7,000 mutual funds are vying for your investment bucks.
  • Fewer than 25% of them actually outperform the S&P 500 over the long haul.

And?
Even stock investors searching for the 10 best stocks should pay attention, because more than 90 million Americans own mutual funds. (Just think of what's stuffed in your 401(k).) So, the news that most funds lag lazy indexes should be taken sitting down.

Drum roll, please ...
There are, however, great funds out there ready to make you money. The 10 best-performing mutual funds of the past 10 years:

Fund

10-Year
Annualized Return*

Recent Top Holdings

Wasatch Micro Cap (WMICX)

24.8%

Big 5 Sporting Goods, Amsurg, O2Micro International

Kinetics Internet (WWWFX)

23.0%

Leucadia National, NYSE Group, Checkfree

Bjurman, Barry Micro-Cap
Growth
(BMCFX)

22.9%

Middleby, MGP Ingredients, Smith Micro (NASDAQ:SMSI)

Bridgeway Ultra-Small
Company
(BRUSX)

22.7%

U.S. Global Investors, EZCorp, Intevac

FMI Focus (FMIOX)

21.0%

Rent-A-Center, W.W. Grainger, Family Dollar

Bruce (BRUFX)

20.9%

Arena Resources, Amerco, Ibasis

CGM Realty (CGMRX)

20.7%

S.L. Green, BHP Billiton, Las Vegas Sands (NYSE:LVS)

Bridgeway Aggressive
Investors 1
(BRAGX)

20.4%

BMC Software, McDermott International,
Cephalon (NASDAQ:CEPH)

T. Rowe Price
Media & Telecom
(PRMTX)

19.3%

American Tower (NYSE:AMT), Crown Castle,
Google (NASDAQ:GOOG)

Quaker Strategic Growth (QUAGX)

18.9%

Williams (NYSE:WMB), UnitedHealth Group,
ConocoPhillips (NYSE:COP)

*Ended April 30, 2007. Data from Morningstar; includes only domestic stock funds.

OK, so small caps have done well over the past 10 years ... which doesn't help us going forward. What's worse, three of the 10 best funds are now closed to new investors.

But that's OK. You don't want to chase past performance anyway.

The foundation of greatness
Let's take a step back and see what we can learn from the 100 top-performing funds.

Metric

Domestic Stock
Fund Average

Top 100 Funds
by Performance

Manager tenure

3.8 years

7.5 years

Expense ratio

1.42%

1.15%

10-year return vs. S&P 500

0.7%

8.7%

The best funds of the past 10 years had, on average, longer-tenured managers and charged less to manage your money. Those two facts are so important that they bear repeating: The best mutual funds of the past 10 years had long-tenured managers who charged less to earn you more money.

Even better, 76 of the 100 best mutual funds of the past decade did not charge loads -- the onerous upfront sales fees that some funds try to get away with charging.

For all 90 million of you ...
So, if you're looking to invest in one of the best mutual funds of the next 10 years, you know where to start: with long-tenured managers who don't charge you an arm and a leg to invest.

Not coincidentally, that's the drum that Fool fund wizard Shannon Zimmerman has been beating for years, and to great success. According to Shannon, those are the very first characteristics he screens for in prospective funds, and his performance as advisor of Motley Fool Champion Funds shows why: Shannon's funds are up 39% on average, while their relevant benchmarks are up 23%.

If you'd like to see Shannon's entire list of recommended funds, click here to join his service free for 30 days. One of the next decade's best performers might just be lurking therein.

This article was originally published on Aug. 11, 2006. It has been updated.

Neither Tim Hanson nor Brian Richards owns shares of any company or fund mentioned in this article. UnitedHealth Group and Family Dollar are Stock Advisor recommendations. Rent-A-Center and UnitedHealth are Inside Value recommendations. NYSE Group is a Rule Breakers pick. Middleby is a Motley Fool Hidden Gems selection. The Fool's disclosure policy never underperforms.


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