Let's begin with a little news from the wonderful world of mutual funds, shall we?
First, as 2005 begins winding to a close, the hottest fund properties of the year are those that fall into Morningstar's "Specialty -- Natural Resources" peer group. Indeed, that category's typical entrant is up roughly 30% on the year, thanks in large measure to surging energy sector titans such as ExxonMobil (NYSE:XOM), Chevron (NYSE:CVX), BP (NYSE:BP), and ConocoPhillips (NYSE:COP).
With each of those companies posting double-digit gains on the year, it's no wonder that the mutual fund peer group that specializes in energy stocks has surged ahead as well. A rising tide, as they say, lifts all boats.
Meanwhile, the biggest year-to-date laggard is the tech fund group, which has eased to the tune of 2.4% as I type. Among diversified fare, large- and small-cap growth funds are also among the market's underachievers.
So what's a savvy fund investor to do with the foregoing information? Note it, find it interesting in a horse-race kind of way, and move along. There's really nothing to see here, folks.
Why so?
Don't get me wrong. I like to watch the ebb and flow of market cycles as much as the next investment geek does. But when it comes to actual investing -- particularly, I'd argue, when it comes to investing in mutual funds -- near-term ups and downs mean precious little.
Instead, as I go about the business of recommending funds for the Fool's Champion Funds newsletter service, I operate from the premise that the right funds for right now are the long-haul overachievers, the ones that will see you through booms and busts and beat index trackers such as VanguardTotal Stock Market (FUND:VTSMX), Vanguard 500 Index (FUND:VFINX), and SPDRs (AMEX:SPY) as you motor down the road to retirement bliss.
To that end, when I go fund shopping for myself or for the newsletter, I zero in on those with built-in competitive advantages such as low price tags, solid management teams, and sound investment strategies. Fund managers who go chasing after this year's hot (pardon the pun) commodities don't make the grade. I far prefer managers who stick to their game plans through good times -- and, especially, bad times, too. It's when a certain investing style is out of favor, after all, that smart money managers can find the kind of stocks they like on the market's sales rack.
Intelligent asset allocation
With that in mind, I think job No. 1 for Foolish fund investors is to put together a solid asset-allocation game plan and then cherry-pick the Champs of their choice for their personalized pie charts.
That said, I also believe there's a bit of room for maneuvering that game plan around longer-term market dynamics. Like a savvy fund manager, you, too should look toward those areas of the market that appear most attractively valued and at least consider tilting your asset allocation in that direction come annual rebalancing time. (You do rebalance annually, don't you?)
So what looks attractive as an asset class right now? Good question. And the good answer, I think, is growth. Growth stocks -- particularly those of the large-cap persuasion -- have been out of favor on a relative basis for quite some time now, as have (naturally enough) the funds that invest in them.
As it happens, I've recommended three of that crop's worthiest contenders to Champion Funds subscribers since the newsletter first opened for business in March 2004. And despite their category's relative doldrums, each has beaten the market since I gave 'em the nod. Taken together, our Champs have surpassed their benchmarks by more than 6.5 percentage points.
Does that make me a financial soothsayer? Hardly. I'm a long-haul investor, not a short-term trendspotter. Still, I'm pleased as proverbial punch by the newsletter's showing thus far, and if you'd like to take a risk-free gander at all our recommendations, archived issues, and model portfolios, just click here.
As you'll see when you flip through our newsletter's pages, the right funds for right now are those that strike a Championship profile.
Shannon Zimmerman is the lead analyst for Champion Funds and owns shares of Vanguard Total Stock Market. The Fool has a strict disclosure policy.