The big enchilada of each issue of Motley Fool Champion Funds -- the Fool newsletter designed to beat the market while putting the fun back into fund investing -- is our Fund of the Month feature. Picks that earn this distinction come outfitted with reasonable expense ratios, talented and successful managers, and sensible long-term strategies -- qualities, in other words, that make 'em worthy candidates for your portfolio.

Not for nothing are these cherry-picked keepers the newsletter's official recommendations. So far, all of our equity funds have made money for shareholders since I first recommended them, and taken together, our Champs are beating the market by more than 6.5 percentage points.

Not too shabby, eh?

Championship-caliber mutual funds, of course, are relatively few and far between. The money-management business is notorious for its overpriced underachievers, funds that charge you a premium for the "privilege" of losing out to the broader market and to comparable peers and benchmarks. It's for that reason we, um, lowlight one Dud of the Month every issue. These are funds that you shouldn't touch with a proverbial 10-foot pole -- and that if you do own, you ought to consider selling.

Some funds practically scream their Dudhood, with sky-high price tags, untested managers, and consistently anemic returns. Others, however, can be tougher to spot than you might imagine, and Fidelity Magellan is a textbook example of this particular variety of Dud.

On the surface, after all, this world-famous mutual fund doesn't look like a candidate for selling. At just 0.63%, its expense ratio seems reasonable, and its talented manager, Bob Stansky, has been in place since 1996. That's a significant stretch of time, and during his tenure, Stansky has hewed to a time-honored stock-picking strategy that involves snapping up shares of high-quality growth stocks when their prices seem attractive. Stansky is a buy-to-hold kind of guy, as well: The fund's most recently reported turnover rate was a mere 6%.

Unhappy endings
But that's, alas, where this now-closed fund's happy story ends: Owing to its massive asset base, Magellan has morphed into a closet index tracker, one with an R-Squared score of 99 relative to the S&P.

For all of you non-fund geeks out there -- I'm guessing that there are at least a couple of you, right? -- a 99 R-Squared score means that over the past three years, fully 99% of Magellan's showing can be explained by movements in the S&P. That's a significant clue that the fund -- whose portfolio included the likes of Yahoo! (NASDAQ:YHOO), Microsoft (NASDAQ:MSFT), Dell (NASDAQ:DELL), and Intel (NASDAQ:INTC) earlier this year -- has simply hitched a ride on its benchmark.

That said, no single data point is determinative, not even R-Squared. In Champion Funds, I've recommended a number of funds whose managers have done great wonders on short benchmark leashes by consistently outperforming their bogies despite a high level of correlation.

That's not the case with Magellan, however.

For the trailing three years ended August 1, 2005, the fund has lagged such venerable (and dirt cheap) S&P trackers as Vanguard 500 Index (FUND:VFINX), Fidelity's own Spartan 500 (FUND:FSMKX), and the SPDRs (AMEX:SPY) exchange-traded fund by more than 1.5 annualized percentage points.

Its five- and 10-year numbers are similarly lackluster. Dogged by assets of almost $56 billion, the fund has simply grown too big for its britches, and while any decision to sell has to be made in light of the tax hit you'll take, I think Magellan is a good candidate for the see-ya-later pile if you currently hold it.

Lessons learned
But beyond just pointing out specific funds to avoid, the newsletter's Dud of the Month feature has an educational purpose, too. Even if you don't own the funds we zero in on, you can use them to gauge those that you do. To aid that cause, in the current issue, we've begun "bullet-pointing" the lessons learned from the Dud column.

Recent lessons include: "Just because a fund looks reasonably priced doesn't mean it is" -- a point that applies perfectly well to Magellan -- and "Avoid load funds. I've yet to encounter one so strong that an even better no-load replacement couldn't be found."

The upshot, then, is this: Champion Funds has you covered coming and going. If you'd like a sneak peak at the Fool newsletter that not only recommends funds you should own but also tells you which kinds of funds to avoid, simply click here for a risk-free 30-day trial.

You and your nest egg will be glad that you did.

Shannon Zimmerman is the lead analyst for Champion Funds. He doesn't own any of the securities mentioned above. Dell is a Motley Fool Stock Advisor recommendation. The Fool has a strict disclosure policy, and you can read all about it by clicking righthere.