Revealed: Best Bets as 2007 Begins Winding Down

Facts are facts: After many years of small-cap dominance, the big boys are back.

Berkshire Hathaway (NYSE: BRK-B), ConocoPhillips (NYSE: COP), and Oracle (Nasdaq: ORCL), for example, have bellied up to the bar with gusto, besting both the Russell 1000 and its small-cap-centric sibling, the Russell 2000, over the past 12 months through Tuesday's market close. That's also true of Vodafone (NYSE: VOD), which has racked up gains of more than 65% over the period. Las Vegas Sands (NYSE: LVS) and Freeport-McMoRan Copper & Gold (NYSE: FCX), meanwhile, have notched triple-digit returns.

Cherry-picked overachievers aside, large caps look like the market's sweet spot right now -- at least for investors looking to buy quality on the cheap. If you want to lay a foundation for long-haul success as 2007 marches toward its close, large caps in the aggregate -- and large-cap growth in particular, for reasons I've explained -- warrant a spot on your further-research list.

Or so says me
The market can move in mysterious ways, frequently paying little heed to the laws of valuation gravity. That's precisely why I think world-class mutual funds are the best way for investors to proceed. With funds, you can allocate your nest egg across the market's various cap ranges and its growth-to-value spectrum with little fuss.

And here's the beautiful part: Whether the market behaves rationally or not, you and your portfolio can be prepared. With funds, it's relatively light work to say, "I'll have this much in large caps, this amount in mids, and how 'bout a dollop of the little guys? Thank you very much." After you've made those calls, you can quickly go about the business of, you know, having a life beyond refreshing your browser every five seconds to see how wealthy you are -- or aren't. 

With funds, it pays to be very choosy
If you're reading this, chances are you know very well just how hard it is for actively managed funds to beat the market, a truism that might incline you toward index funds. A little knowledge, however, can be a dangerous thing: Index funds are market laggards, too -- investment vehicles that are virtually destined to lose to their benchmarks each year by about the amount of their annual costs. Indices themselves don't have expense ratios, after all. Index funds, however, do.

So, how can you get what you pay for with an investment vehicle where less -- when it comes to expense ratios -- really is more? Excellent question. As the Fool's resident fund geek, I've found that strategy, managerial tenure, and whether managers "eat their own cooking" by investing their own money alongside that of their shareholders are all key criteria. If a manager isn't willing to the take the plunge, after all, why should you?

Criteria in action
Not coincidentally, those are among the main points I consider when making recommendations for members of the Fool's Champion Funds service -- and so far, so good. Since we first opened for business over three years ago, 96% of our recommendations have made money for shareholders.

If you'd like to take a look at our picks -- along with our archives, model portfolios, and every column inch of advice I've offered members so far -- no problem: Just click here to take a 30-day free trial of Champion Funds.

This article was originally published as "Revealed: Best Bets for the Back Half of 2007" on May 22, 2007. It has been updated.

Shannon Zimmerman, lead analyst for Motley Fool Champion Funds, doesn't hold a financial position in any of the companies listed. Berkshire Hathaway is a Motley Fool Stock Advisor and Inside Value recommendation. Vodafone is an Inside Value pick. The Fool is investors writing for investors, and you can read all about our disclosure policy by clicking right here.