As the Fool's resident fund jockey -- not to mention the guy who runs point on our Champion Funds newsletter service -- my main task 'round these parts is to ferret out tomorrow's mutual fund winners today. Combine that job description with the month of January -- always a fine time for looking ahead, don't you think? -- and voila! I'm in a forecasting frame of mind.
With that as backdrop, here's the inside scoop on a pair of funds that I think has what it takes to get the job done in 2006 -- and beyond.
iShares
S&P Mid-Cap 400 (IJH)
It doesn't boast nearly as much in assets under management as indexing titans such as Vanguard 500 Index (FUND:VFINX) or the SPDRs (AMEX:SPY) exchange-traded fund, but the iShares S&P MidCap 400 ETF tracks a benchmark that's been an absolute bear to beat. To wit: While the 500 has delivered a total return of nearly 420% for the 15 years that ended with November, the MidCap 400 has cranked out nearly 870%.
True, the iShares ETF was just launched in 2000, but its tracking error since then has been minimal, with the fund lagging its benchmark by even less than its expense ratio over the past five years. No small feat, that.
And speaking of price tags, iShares charges investors just 0.20% to invest here. Combine that salient detail with the sparse number of attractive options from traditional index mutual funds, and this ETF -- which counts the likes of Motley Fool Stock Advisor pick Whole Foods (NASDAQ:WFMI), Chico's (NYSE:CHS), and SanDisk (NASDAQ:SNDK) among its top holdings -- adds up to a fine pick for the indexing portion of your portfolio.
Mutually exclusive?
Of course the trouble with even fine index trackers -- or at least the trouble with investing in them exclusively -- is that, owing to expenses, you're virtually bound to lag the market year in and year out.
The good news is that you don't have to invest exclusively in index funds. Indeed, I think it makes smart asset-allocation sense to invest in both active and passively managed picks; throughout the market's history, those two investment strategies have traded pole position.
That said, you can't just throw a dart and expect to hit a winner: The typical actively managed fund, after all, is an expensive, market-lagging dog. Not to worry, though. The funds I highlight in Champion Funds (which you can test-drive for free) are far from typical. Consider, for example...
Dodge & Cox International Stock (DODFX)
Here we have an extraordinary fund whose May 2001 inception belies a talented and experienced management team whose members, on average, have 16 years of money management know-how under their belts. Unsurprisingly, the fund has been a winner out of the gate, delivering a total return of more than 78% between June 2001 and the close of this past November.
That track record puts the MSCI EAFE index to shame. The EAFE -- which is essentially the S&P 500 of foreign equities -- hasn't even managed half that gain. And get this: The price of admission at International Stock -- whose top holdings recently included Motley Fool Income Investor pick GlaxoSmithKline (NYSE:GSK) and Sony (NYSE:SNE) -- is a mere 0.77%. What's more, since it first received the Championship nod, the fund has appreciated by more than 60%.
Not too shabby, eh?
Putting it all together
As solid as these funds are, savvy investors know that cherry-picking individual keepers is really the second item on their to-do lists. The first item ought to be developing an asset-allocation game plan. Only after that's in place should you go about the business of slotting funds into your personalized pie chart.
Champion Funds has you covered there, too. In addition to our overall list of Champs -- a group that has outpaced the market by nearly eight percentage points since we first set up shop, by the way -- the newsletter provides three model portfolios, well-crafted (if I do say so myself) asset-allocation starting points that you can customize to match your own tolerance for risk and investing timeline.
If that sounds like a useful twofer, I encourage you to take a risk-free trial of our newsletter. It won't cost you a thing to sneak a peek for a full 30 days. And in addition to our recommended funds and model portfolios, your trial grants access to the newsletter's back-issue archives -- where you can get the inside scoop on every fund I've ever recommended -- and our world-class discussion boards as well.
Intrigued? Good! Just click here to get started.
Motley Fool Champion Funds analyst Shannon Zimmerman owns shares of iShares MidCap 400 Index.The Fool has a strictdisclosure policy.
