The Key to Consistent Winners

Imagine that on April 1, 2004, you had the foresight to put the bulk of your investing capital into some of the market's biggest recent winners. Picture a portfolio with the top five stock holdings of:

Seem unlikely that you could have grabbed that diverse collection of winners with the largest chunks of your investing dollars? Thousands of people bought that winning combination when they chose to invest in the very first mutual fund recommended by Shannon Zimmerman in his Motley Fool Champion Funds newsletter service: Constellation Clover Core Value (FUND:CCEVX). Up more than 30% since it was tabbed in the April 2004 issue -- no doubt on the strengths of the above-mentioned companies, which were five of the fund's top 10 holdings in April 2004 -- Constellation has exactly the sort of characteristics Shannon looks for in all his selections:

• A lead manager with more than 10 years at the helm (in this case, a co-founder of the firm).
• Outperformance of its benchmark and peers during this extended tenure.
• Lower-than-average fees.

A winning combination
In the case of Constellation, Shannon got to know the fund manager and liked his approach of buying companies that others are selling. As Shannon wrote in his initial recommendation, "The fund is a good fit for investors who have gone hog wild on growth stocks or hold funds whose managers have done so. That's because [manager Michael] Jones and his team assemble the fund's portfolio with an eye toward snapping up the market's great unloved."

Unloved? That's exactly what refiner Valero was before 2004, when it was operating in an out-of-favor industry with uncertain energy prices. That's also when the team at Constellation Clover Core Value saw real value in the stock and was snapping up shares. And it's no surprise they did so. The fund boasts 11% 10-year annualized returns -- nine points ahead of the S&P 500 -- and has beat its benchmark (the Russell 3000 value index) in six of those 10. That's a track record of smart investing.

The Foolish bottom line
Finding consistent winners among thousands of mutual funds may seem daunting. That's why you need to narrow your search. Ignore unproven, untested, and rookie managers. If a fund has a track record of outperforming its peers, make sure it was on the current management team's watch. And if you see an above-average expense ratio, it's more than likely not attached to an above-average fund.

Of course, good funds come in all shapes and sizes. Constellation is a value-oriented pick, but Shannon, for example, doesn't limit his searches to value fare. When nearly 75% of the 10,000 mutual funds out there fail to outperform their benchmarks, you have to keep your eyes open for good funds under any label.

Not sure how to get started? Give Shannon 's Champion Funds service a trial run. His track record is impressive : 75% of his picks are outperforming their benchmarks. You can view all his best fund ideas for free with a 30-day trial. Click here for more information.

Roger Friedman is the managing editor of newsletters and the author of Nipple Confusion, Uncoordinated Pooping and Spittle: The Life of a Newborn's Father . He does not own shares of any company mentioned in this article. The Motley Fool has a full disclosure policy .