You want it all. As an investor you want to beat the market, but you don't want to take on a lot of risk to get there. You want to see your investments appreciate significantly, and you don't want to toss and turn at night.
It's possible. The amazing thing is that it's possible using the asset class that you probably wrote off first -- mutual funds. Yes, mutual funds.
It seems outlandish at first. You may remember a pair of brothers with funny hats in the 1990s warning investors that 75% of the mutual fund universe loses to the market. Actively managed funds, on average, can't put up much of a fight against a passively managed index. It's sad. It's true. It's also not a complete picture.
How the other 25% lives
Not every mutual fund is a laggard. Some have managed to consistently beat the market with shrewd analysis, fair expense ratios, and a chuckle at the expense of their meandering fund rivals.
Motley Fool Champion Funds has an uncanny knack for sniffing out the good stuff. Of the 34 funds that Shannon Zimmerman has recommended to his newsletter's subscribers, all but two have appreciated in value. Only The Yacktman Fund (FUND:YACKX) and the Loomis Sayles Global Bond Fund (FUND:LSGLX) are in the red, off by 1.9% and 1.1%, respectively.
Yacktman's performance is noteworthy because many of its holdings, such as Wal-Mart (NYSE:WMT), Coca-Cola (NYSE:KO), Kraft (NYSE:KFT), Bristol-Myers Squibb (NYSE:BMY), and Pfizer (NYSE:PFE) are quality companies that have been heading lower over the past year. If you happen to own any of those stocks personally and feel frustrated about the recent underperformance, you could have offset some of that risk and still owned a stake in those companies through Don Yacktman's fund.
So what happens when 32 of your 34 picks are in the black? Good things, apparently. Shannon's average fund pick is up 19% over its benchmark's more modest 12% average gain. Yes, you can beat the market with mutual funds!
The secret to Shannon's success
So how does he do it? Shannon, who honed his fund-picking skills as a mutual fund analyst for Morningstar, looks for several things like strong historical performance, established long-term management, low expenses, and a low turnover ratio. He also discards various potential picks until he finds one with an investment philosophy that makes sense.
There aren't any parlor tricks here. Shannon rolls up his sleeves and walks subscribers through the learning process. That's the primary aim of Champion Funds, by the way -- to make you a smarter investor. Over the course of just a few issues you may find yourself picking up on the quantitative and qualitative metrics that Shannon uses to single out the next great mutual fund.
Learn from Shannon. Duplicate his success. Do you realize what it would mean if you were able to achieve a 7 percentage point lead over the market? Let's flesh it out for you. If you invest $3,000 a year for 30 years and achieve 10% in market gains -- pretty close to the historical average -- you would end up with $540,000. Nice. But if those same investments were earning you 17% a year, after those same 30 years you would be sitting on a whopping $2.3 million.
Who wouldn't want that? The aim of Shannon's Champion Funds is to squeeze out those extra percentage points.
So, yes, you can have it all. With mutual funds even. What's even better is that you can now have it all for less than you think. Take advantage of a 30-day free trial offer to see how much of Shannon's brain you can pick over the next few weeks.
Pick prudently.
Longtime Fool contributor Rick Munarriz thinks that funds are part of a balanced portfolio breakfast. He does not own shares in any of the companies mentioned in this story. Pfizer and Coke are Inside Value recommendations. Kraft is an Income Investor recommendation. The Fool has adisclosure policy. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
