You've heard of the man, and you've heard of his mutual fund. From 1977 to 1990, Peter Lynch guided Fidelity Magellan
We're all looking for the next Magellan. But with a dizzying array of mutual funds out there, it's impossible to know where to look. Or is it?
Great funds in the making
If we wanted to identify an up-and-coming fund, what would we look for?
Let's start at the top. We'll want to see a confident manager with a track record of success, one who assembles the portfolio using a sound and time-tested strategy, and has plenty of his or her own money in the fund.
We also fervently favor funds with reasonable expense ratios. Analysts for Motley Fool Champion Funds tell us that few statistics relate more strongly to future performance than this one. Extra costs simply represent extra ground that the fund manager must make up each year, just to stay even with his or her benchmark and rivals.
Finally, the fund will need a reasonable-size asset base, one that gives the manager enough flexibility to build meaningful positions (and exit them) without fear of moving stock prices in the wrong direction -- that is, up when buying and down when selling.
One thing's for sure: Magellan itself can't be the next Magellan. It has morphed into a giant that counts Hewlett-Packard
Up and coming
There's a lot more to finding the next Magellan than all that, of course. We admit that Lynch combined intelligence, common sense, and even a knack for playing hunches in a way that's hard to match. In his everlasting pursuit of what he called "10-baggers," he unearthed monsters like Volvo and Pep Boys
But Champion Funds has shown its own knack for identifying potential winners. After more than three years the average recommendation is ahead of its benchmark.
And the winner is ...
The next Magellan is out there, right now, with huge gains ahead of it. But it's not an index fund, and it's not even Magellan itself (which has turned into a bloated giant that resembles an index tracker). Not for nothing did Fidelity recently shuffle the management deck at Magellan, which -- in an effort to stanch the inflow tide -- is currently closed to new money.
Instead, the next great mutual fund is being led by a smart manager who doesn't have to overcome outrageous fees or contend with an outsized asset base that undermines his or her stock-picking strategy. You can read some of the best mutual fund analysis available in Champion Funds and see every recommendation (smaller, nimbler funds among them), right now, with a no-obligation 30-day free trial. Here's more info.
This article was originally published on Jan. 20, 2006. It has been updated.
Rex Moore will write for food ... preferably doughnuts. He currently owns no companies mentioned in this article. FedEx is a Stock Advisor selection. Here's the Fool's disclosure policy.
