Someone once told Charlie Dreifus -- the manager of one of my favorite small-cap mutual funds -- that investing with him was like watching grass grow. How did he react to that particular remark? Well, not only did the guy take the comment in stride, but he took it as high praise -- as well he should.
"I view that as a tremendous compliment," Dreifus told me when I interviewed him for the inaugural edition of the Fool's Champion Funds newsletter service. "To me, grass grows in only one direction: up."
"And it may be," he continued, that "depending on the amount of moisture and sun, that sometimes it grows fast and sometimes it grows slower, but it grows. And that's fine with me."
That's no doubt fine with Dreifus' shareholders, too.
Indeed, from June 1998 through the end of this past October, investors in his Royce Special Equity fund have been treated to a triple-digit total return, a mark that sails past those of index trackers such as Vanguard Total Stock Market
Indeed, a $10,000 investment in Special Equity on the day the fund first opened for business would have more than doubled by the time the books closed in September. Meanwhile, a similar investment in the Russell 2000 would have been worth a bit more than $15,000.
Good news and bad
That's the good news; here's the bad: Special Equity stopped accepting money from new investors back in March 2004.
I think that's a smart, shareholder-friendly move. Indeed, while managers of funds that target big boys such as General Electric
Of course, you'll only benefit from his fund's closure if you already own shares of Special Equity. If not, I'm happy to report that there's more good news to, um, report. Speaking of which ...
Open for business
As much as I admire Charlie Dreifus and the job he's done for investors at Special Equity, there are certainly other small-cap worthies among the fund industry's numerous contenders. I've identified five of them that meet the stringent -- and exceedingly Foolish -- criteria I use when picking winners for Champion Funds. Not surprisingly, each of 'em has beaten the broader market since I gave them the nod, too.
Relative to the S&P, in fact, all but one has outperformed by double digits, and the one fund that hasn't yet hit that mark only made its newsletter debut in the August issue.
Beyond that, our success hasn't been limited to just the fund industry's small fish, either. Indeed, our aim with Champion Funds is to cherry-pick the best and brightest the industry has to offer from across the market's various cap ranges and styles. So far, so good, too: Taken together, our picks are beating the market by 7.5 percentage points -- a significant sum in the world of mutual funds, and one I encourage you to compare with your own portfolio's returns. And yep, the newsletter's model portfolios -- three collections of funds designed with Aggressive, Moderate, and Conservative investors in mind -- are beating their benchmarks, too.
So, with all that in mind, I just have to ask: Can you say the same of your portfolio? And if so, have you been able to achieve those returns in a way that allows you to get a good night's rest along the way?
For folks who invest in the typical mutual fund, I'm just about 100% positive that the answer is a resounding no. Roughly three out of four funds fail to beat the market over the long haul, after all. And while I can't crunch the numbers to prove it, my strong hunch is that lots of folks who invest exclusively in stocks have suffered through stomach-churning performance gyrations en route to similarly lackluster returns.
That's not the case for investors in Champion Funds picks -- which only stands to reason, right? These funds are managed by the world's best stock pickers, folks with track records of beating the market over the long haul. And our Champs also run with low price tags, boasting expense ratios that will, on average, run you less than 1% a year.
That's an important competitive advantage when it comes to investing in funds, and I'd argue that so too is a subscription to our newsletter. But you don't have to take my word for it. Click here to take a risk-free trial of the newsletter designed to put the fun back into fund investing while beating the market along the way. You and your portfolio will be glad you did!
This article was originally published on Sept. 20, 2005. It has been updated.
Shannon Zimmerman is the lead analyst for Champion Funds and owns shares of the Vanguard Total Stock Market fund (VTSMX). 3M is a Motley Fool Inside Value recommendation. The Fool has astrict disclosure policy.