The meat and potatoes of my Champion Funds newsletter service is the Fund of the Month feature. In each issue, I profile a fund that meets a stringent set of criteria that includes, among other things, a cheap price tag, an outstanding performance track record, and a manager who has been on the scene long enough to take credit for that record.

There's nothing inherently magical about a fund, after all. It can only ever be as strong as the person who's calling the shots right now.

With that in mind, the newsletter also features a monthly article we like to call the Dud of the Month. As you'd imagine, those column inches are reserved for the dregs of the mutual fund universe -- those with risky strategies, untested or wobbly management, and luxury-item price tags.

Sometimes, though, even funds that look sweet are really lemons in disguise; you just have to know where to kick the tires to find the weak spots.

Case in point
Consider, for example, the strange case of Fidelity Magellan (FUND:FMAGX). If funds were actors, this one would surely be one of Hollywood's megastars, dating Katie Holmes perhaps, and appearing in all his glory, say, on an Oprah lovefest.

Though the fund is currently (and fortunately) closed to new investors, the thing sports a massive asset base of more than $54 billion. And yep, you did indeed read that right: more than $54 billion.

That figure owes at least in part to a history that's nearly mythic in the realms of fund lore. The legendary Peter Lynch ran Magellan for 13 years, making gobs of money for shareholders when it was his production. Lynch left that post eons ago, but "Magellan" still has the ring of magic for plenty of investors -- and not just because they've got stars in their eyes, either.

The fund's price tag is a mere 0.64%, and its current manager has been in place since 1996. So far, so good, but then the story starts to go awry. Alas, there's no Hollywood ending to be had here.

Modern Portfolio Theory
When it comes to analyzing mutual funds, one of my favorite stats is R-Squared, a handy-dandy calculation that quantifies how much of a fund's performance simply owes to movements in a given benchmark. For example, index trackers such as Spiders (AMEX:SPY) or Fidelity's own Spartan 500 (FUND:FSMKX) run with R-Squared scores of 100 relative to the S&P 500, which is precisely what you want to see in funds that are designed to track an index: an exact correlation.

That's not, however, what you want in an actively managed fund whose price tag is roughly six times larger than either of those index picks. But with Magellan these days, that's just about precisely what you get. Indeed, the fund's most recently reported R-Squared is 99.

That figure raises a rather obvious question: Why pay any more than you absolutely have to for a closet index hugger? If you want to invest significant sums in the likes of General Electric (NYSE:GE), Microsoft (NASDAQ:MSFT), ExxonMobil (NYSE:XOM), and Citigroup (NYSE:C) -- Magellan's top holdings at the end of March 2005 -- just buy a dirt cheap S&P tracker. Each of those names will be well-represented there, too.

What's more, even Magellan's exceedingly modest bets against its bogey haven't paid off. Over the past three years, it has trailed the S&P by more than 2.3 annualized percentage points -- a significant sum for a fund with an R-Squared of 99. It's lagged over the five-year period, too.

Check, please
Magellan, then, is a prime example a Dud, and while any decision to sell a fund has to be made in light of, among other considerations, any tax hit you might take, I certainly think there are worthier contenders for your mutual fund moola.

Indeed, I write about 'em in every issue of the newsletter, and you can take a peek at all my recommendations by taking a risk-free trial. You'll also have access to our dedicated discussion boards, which to my way of thinking are worth the price of admission alone.

Nothing beats hearing from other investors about their experiences with funds that you may be considering, and I'm on hand to answer questions along the way, too. What's more, we just recently completed a rollout of model portfolios designed for aggressive, moderate, and conservative investors. All that info is just a mouse click away, too.

So what are you waiting for? Magellan to return from the land of the mutual fund lost? It could happen, of course, but I suspect Tom Cruise will be walking the lovely and talented Ms. Holmes down the aisle well before that happens.

In the meantime, there's an A-list of funds -- Champion Funds -- that are well worth a starring role in your portfolio.

Shannon Zimmerman is a Fool and fund fan of long standing, and he doesn't own any of the securities mentioned above. The Fool has a disclosure policy.