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Money Managers: The Best of the Best

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Everyone knows that most actively managed mutual funds just don't beat the market over the long run. Even the really smart Wall Street types have trouble beating their peers consistently, year after year.

However, among the financial advisor community, there are some asset managers with reputations for being right more often than not. Should you buy the funds that these managers run?

The cream of the crop
As reported by MutualFundWire, financial consultants kasina and Horsesmouth recently completed a survey of more than 3,000 financial advisors and asked them to rank 21 fund companies for levels of manager expertise and knowledge. Perhaps not surprisingly, the top spot went to Pimco/Allianz funds, driven primarily by the superstar power of bond maven Bill Gross. Nabbing the No. 2 spot was American Funds, followed by Ivy Funds, BlackRock, and Natixis Funds.

While some of these names may be familiar, others may be more of a surprise. The main thing investors should keep in mind is that all five of these fund families have sales loads, or fees that are paid to financial advisors for recommending the funds. That's how the majority of advisors earn their keep. However, there are still some good choices among these top five managers, if investors can buy the funds through their 401(k) or other qualified retirement plan, where the load is likely to be waived.

King of the hill
Bill Gross is considered to be a top dog when it comes to fixed-income investing, and for good reason. He's amassed one of the finest track records in the business, and skillfully avoided most of the fallout from the recent subprime mortgage meltdown. In fact, Pimco had been predicting serious trouble for the housing market years before most other managers even had the issue on their radar screens.

The company's flagship Pimco Total Return Fund (PTTAX) outranks 96% of all intermediate-term bond funds over the past decade and a half. Of course, if you're looking to get access to Gross' expertise without having to pay a front-end load, investors might want to check out Managers Pimco Bond (MBDFX), which is also run by Gross but costs quite a bit less than the Total Return fund.

Second-place winner American Funds is one of the most well-run fund shops around. It employs a finely honed team approach and has perfected its investment process over the past several decades. If you're looking for a moderate large-growth fund, consider American Funds Growth Fund of America (AGTHX), the second-largest mutual fund in existence, behind Pimco Total Return. Growth Fund of America looks for fast-growing companies like Oracle (Nasdaq: ORCL  ) and Apple (Nasdaq: AAPL  ) , and ranks among the top 7% of large-growth funds over the past 15 years. Likewise, American Funds Europacific Growth (AEPGX), another giant of a mutual fund, buys foreign stocks such as Brazil-based oil company Petroleo Brasileiro (NYSE: PBR  ) and sits atop 95% of its competitors over the past decade and a half.

The runners-up
Ivy Funds isn't as big of a household name as Pimco or American Funds, but it offers a pretty diverse range of 31 bond and equity funds. There are some funds that look pretty decent, but expenses are rather high on many of them. For example, Ivy Mid Cap Growth (WMGAX) boasts a long-tenured manager and a solid track record investing in mid-sized names like payroll processing firm Paychex (Nasdaq: PAYX  ) , but with a 1.60% expense ratio, it's a bit pricey. Ivy Large Cap Growth (WLGAX) is a more reasonable choice, with a 1.15% price tag and a decent slug of growth names like Cisco Systems (Nasdaq: CSCO  ) .

BlackRock also offers a wide range of more than 100 fixed-income and stock funds. Black Rock GNMA (BGPAX) is a solid choice for government bond exposure, although with a 1.09% expense ratio listed in its prospectus, it's a bit expensive for its category. Municipal bond investors might find a home with one of Black Rock's dozen muni funds, which include state-specific and national funds.

Natixis Funds offers a much smaller line-up of funds, limiting investor choices. One potential standout is the Natixis CGM Advisor Targeted Equity Fund (NEFGX), subadvised by legendary investing guru Ken Heebner. This large-growth fund is ultra-concentrated, very volatile, and high on risk, but Heebner has proven his abilities over the long run.

This fund invests in only a handful of names, such as Goldman Sachs (NYSE: GS  ) and FedEx (NYSE: FDX  ) . Of course, as is the case with so many funds meant to be sold through the financial advisor channel, you can buy pretty much the same fund elsewhere for cheaper. If you want to take a bet on Heebner's prowess, you can simply buy CGM Focus (CGMFX) with no load and a cheaper expense ratio than the corresponding Natixis fund.

Ultimately, investors should never pay any kind of load for the privilege of owning a mutual fund. If you're working with a financial advisor, look for a fee-based professional who isn't compensated by the particular funds that he or she recommends. There certainly are some excellent choices among load-bearing fund families, if you can bypass that load through your retirement plan. But if not, look for a similarly run fund that won't charge you a hefty fee for the price of admission. After all, you want to fatten your retirement account, not your financial advisor's!

For more insider investing and personal financial planning tips, check out the Fool's Rule Your Retirement service, which provides top-notch retirement and mutual fund advice. You can start your free 30-day trial today.

Amanda Kish is the Fool's resident fund advisor for the Rule Your Retirement investment newsletter. Amanda owns shares of Managers Pimco Bond. Paychex is a Motley Fool Inside Value recommendation. Apple and FedEx are Motley Fool Stock Advisor picks. Paychex and Petroleo Brasileiro are Motley Fool Income Investor picks. The Fool owns shares of Oracle. The Fool has a disclosure policy.


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Amanda Kish is the Fool's resident fund advisor for the Rule Your Retirement investment newsletter.

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