You can't afford to let an inexperienced fund manager touch your money right now.
Just look around you. Some of the world's most renowned financial institutions have been on the verge of collapse for months -- and despite the better mood we've seen lately, many of them still aren't out of the woods. Job losses remain a regular feature in the news. And if the economy has finally shown some signs that its decline is decelerating, well, that's a far cry from seeing any actual improvement among the most commonly followed economic indicators.
Now isn't the time to let anyone experiment with your portfolio. Now's the time you need people who already know exactly what they're doing.
Take the track record
Looking for experienced managers is one of the top criteria that Foolish fund expert Amanda Kish uses in picking funds for her Motley Fool Champion Funds newsletter. And unlike some of the other factors -- including low fees and low amounts of portfolio turnover -- you can't gain experience without putting in the time.
That means that using experience as a requirement in evaluating funds can make your job a lot easier. Rather than having to go through thousands of different funds, you can focus on a relative handful. For instance, I recently searched for no-load large-cap blend funds where managers had served for a decade or more, charged annual fees of less than 1%, and reported 10-year performance figures.
I came up with just 50 funds. But perhaps most importantly, out of those, only two failed to outperform the S&P 500 over the past decade. Here were some of the best performers:
|
Fund
|
1-Year Return
|
10-Year Average Return
|
Top Holdings Include …
|
|
CGM Focus (CGMFX)
|
(54.7%)
|
16.7%
|
Abbott Labs (NYSE: ABT ) , Wal-Mart (NYSE: WMT )
|
|
Hartford Capital Appreciation (HCAYX)
|
(41%)
|
4.8%
|
Goldman Sachs (NYSE: GS ) , Schering-Plough (NYSE: SGP )
|
|
MainStay MAP I (MUBFX)
|
(35.7%)
|
3.1%
|
Coca-Cola (NYSE: KO ) , DuPont (NYSE: DD )
|
Source: Morningstar.
Of course, that doesn't mean that all inexperienced fund managers do badly. Plenty do well -- and become tomorrow's experienced outperformers. But with experienced managers doing much better than average, it doesn't take much math to figure out how funds that don't have managers with established track records have fared.
Think small
The phenomenon doesn't just exist for large-cap stock funds, either. In the latest issue of Champion Funds, you'll find that Amanda has discovered one example of a small-cap fund that has put together top numbers over the past 15 years -- and the most tenured member of its management team has been at the helm throughout that entire time period. Identifying stocks like National Oilwell Varco (NYSE: NOV ) years before they became well-known companies, this fund has turned its experience into profits for long-term investors.
In fact, the fund did so well that it closed its doors to new investors more than seven years ago. But due in part to the bear market, the fund has decided to take new money -- giving you and other investors the chance to jump in, at least for a limited time.
If you're curious about Amanda's discovery, don't worry -- all it takes to see the new Champion Funds issue is to become a subscriber. We'll even make that part easy, with a free 30-day trial that gives you full access with absolutely no obligation.
Regardless of what kind of mutual fund you're looking to add to your portfolio, be sure you notice how much experience a fund's management team has before you commit your money to its care. Given how dicey the financial markets have been lately, the last thing you want is to be left paying the bill while your fund managers learn their lessons the hard way with your money.
For more on being smart with your mutual funds, read:
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