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%

O2 Micro, China Hongxing Sports, Big 5 Sporting Goods

Kinetics Internet (WWWFX)

23.0%

Leucadia National, NYSE Euronext, Checkfree (NASDAQ:CKFR)

Bjurman, Barry Micro-Cap
Growth
(BMCFX)

22.9%

Dynamic Materials, Diodes, Andersons

Bridgeway Ultra-Small
Company
(BRUSX)

22.7%

U.S. Global Investors, Bolt Technology

FMI Focus (FMIOX)

21.0%

iShares S&P SmallCap 600, Kennametal, Manpower (NYSE:MAN)

Bruce (BRUFX)

20.9%

Arena Resources, ATP Oil & Gas, Amerco

CGM Realty (CGMRX)

20.7%

Rio Tinto, Potash Corp. of Saskatchewan, BHP Billiton (NYSE:BHP)

Bridgeway Aggressive
Investors 1
(BRAGX)

20.4%

Big Lots, FEI, Morgan Stanley (NYSE:MS)

T. Rowe Price
Media & Telecom
(PRMTX)

19.3%

American Tower, Crown Castle, Amazon.com (NASDAQ:AMZN)

Quaker Strategic Growth (QUAGX)

18.9%

Freeport McMoRan, Canadian Natural Resources (NYSE:CNQ), Transocean (NYSE:RIG)

*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 our team at Motley Fool Champion Funds has been beating for years, and to great success. Those are some of the very first characteristics we screen for in prospective funds, and Champion Funds has found success with that formula: recommended funds are up 39% on average, while their relevant benchmarks are up 24%.

If you'd like to see our entire list of recommended funds, click here to join the 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. NYSE Euronext is a Rule Breakers recommendation. Amazon.com is a Stock Advisor recommendation. The Fool's disclosure policy never underperforms.


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