The Place You'll Find the Market's Best Stocks

Raise your hand if you've ever gone hunting for one of the market's 10 best stocks.

Yeah, me, too.

See, every year my colleague Tim Hanson recaps the 10 best-performing stocks of the previous decade.

Who does what, exactly?
And every year, Tim has found that the 10 best performers share three remarkable traits. Before they began their big run-ups, they were:

1. Obscure.
2. Ignored.
3. Small.

With the notable exception of Apple (NASDAQ:AAPL) -- fourth on this year's list with nearly 6,000% returns -- those criteria apply to all the winners. So if you're out hunting for the next rocket stock, search among small, obscure companies operating below Wall Street's radar.

Because as great a business as Qualcomm (NASDAQ:QCOM) is right now (yesterday it hit its 52-week high, so it's firing on all cylinders), it's still an $80 billion company with more than 20 analysts on its trail.

Simply put, its best days are behind it -- it's just too big.

The growth game
Of course, the problem with the hunt is really the hunters. Small-cap growth chasers tend to overpay (at best) or speculate on shaky businesses.

That's why I was so surprised to stumble on the Turner Emerging Growth (TMCGX) fund. According to The Wall Street Journal fund screener, Turner Emerging Growth is among the top-performing mutual funds of the past decade -- earning investors 25% annualized returns from 1998 through yesterday.

If you had plunked five grand into this fund back when Seinfeld had just ended its run, you'd have nearly 50 grand today!

Under the hood
The fund's name doesn't give much of a clue to its mission. But TMCGX started business as "Turner Micro-Cap Growth Fund" -- it changed its name in recent years -- which gives you a pretty good idea of the kinds of companies it looks for. According to Turner, it looks for U.S. companies with "small and very small market capitalizations" that have strong earnings growth potential. (In one filing, the fund qualified "small and very small" as "under $500 million.")

Looking at a few of its top holdings over the years, you'll see why the fund has been so successful:

Data from Morningstar and fund filings.

If you're looking for the best stocks of tomorrow, there's a good chance they're hiding in the lineup of Turner Emerging Growth.

A splash of cold water
Unfortunately, the fund is closed to new investors. A micro-cap fund -- a good one, at least -- must limit its total assets if it wants to remain nimble enough to chase these tiny companies.

That said, we can learn a thing or two from this fund -- because it's the type of fund you should be searching for (indeed, it's the type of fund our Motley Fool Champion Funds team actively scavenges for).

For one, it has reasonable expenses: There are no loads, and its 1.4% expense ratio is reasonable for a micro-cap fund. It also has a long-tenured manager; Frank Sustersic has been around since the fund first opened for business, so those incredible performance figures were racked up on his watch. More important, the management team sticks to their strategic guns in good times and bad.

Words for the fridge door
Consider this bit of wisdom, written in October 2001 (not a very good time for the market) by Turner Investment Partners co-founder Bob Turner:

Over the years we've learned the best way to succeed in investing is to develop investment disciplines and follow them scrupulously. Investors tend to get into trouble when they change their investment style, when the pain of underperformance becomes so great that they give way to the temptation to do something -- anything -- to correct the problem. Ironically, they tend to typically change their style just about the time when it's due to return to favor. As we see it, to succumb to that temptation is a formula for investment mediocrity.

Those are words to invest by. And they speak to the hunt for one of the market's next monster performers. If you are not committing time, energy, and resources to micro-cap investing, you'll likely pick the rock instead of the rocket.

Of course, if you hold a taxable account, IRA, or 401(k), you likely have mutual funds to help you gain exposure to areas of the market outside your expertise. If micro caps fit that bill, keep TMCGX on your watch list in case it ever reopens, and then see the four small-cap growth funds we recommend right now at Champion Funds. You can view those funds free of charge with a no-obligation one-month trial. To learn more, click here.

Brian Richards does not own shares of any securities mentioned in this article. Apple is a Motley Fool Stock Advisor recommendation. Intuitive Surgical is a Rule Breakers pick. The Fool's disclosure policy thinks it just might make a run at this thing.