If you're reading this, I have a hunch you know that, when it comes to mutual funds, no-load is the only way to go. In all my years of investing in and writing about funds, I've yet to encounter a load fund so strong that a no-load alternative (i.e., one that doesn't deduct a sales charge from the amount you invest) couldn't be found.
Not coincidentally, the Fool's Champion Funds newsletter service -- where I serve as your friendly neighborhood fund analyst -- focuses on choice funds culled from the no-load universe's best and brightest.
The "A" team
So what does it take to make the newsletter's grade? Good question -- not least because we do, in fact, grade 'em. For starters, I love cheap price tags -- so much so that sometimes even seemingly low expense ratios give me sticker shock.
Consider, for example, Dreyfus (DREVX), a large-cap fund with a price tag of "just" 0.80%. Dreyfus lists GE (NYSE:GE), ExxonMobil (NYSE:XOM), Altria (NYSE:MO), Microsoft (NASDAQ:MSFT), and Citigroup (NYSE:C) as its top five holdings.
OK, fair enough, some folks may be saying. The fund's price of admission seems reasonable.
Mirror, mirror
Thing is, you can procure virtually mirror-image market exposure via dirt cheap index trackers such as Vanguard 500 Index (FUND:VFINX) or the popular SPDRs (AMEX:SPY) exchange-traded fund -- which cost 0.18% and 0.11%, respectively. Indeed, for the three years that ended with December 2005, Dreyfus' R-Squared score -- a gauge of how much of a fund's performance can be explained by movements in a given benchmark -- was 98.32 relative to the S&P 500, meaning that nearly all of the fund's showing over the period owes to the performance of the S&P.
Make no mistake: Some funds do great wonders on short leashes. But that's not been the case here. Over the aforementioned three-year period, in fact, Dreyfus trailed the S&P by roughly 1.8 annualized percentage points, meaning that even its small bets didn't pan out. (Not coincidentally I'm sure, the shop behind the fund recently installed a new slate of managers.)
You can do much, much better
Simply put, the theory behind Champion Funds is that savvy fund investors can outperform the market by asking (and answering) a consistent set of questions before taking the mutual fund plunge. And that's been the practice at our newsletter, too. Indeed, as I type, our list of recommended funds is clobbering the market by more than 11 percentage points. Each of our model portfolios -- which come in Aggressive, Moderate, and Conservative flavors -- is beating its benchmark, too.
If you'd like to take a gander at our newsletter -- not to mention the complete list of funds I've recommended since we first opened for business -- you can do so for free for 30 days. Click here to give the service a trial. And once you've had a chance to give Champion Funds the once-over, be sure to let us know what you think: The world's best mutual funds discussion boards (says me) come gratis for 30 days, too.
Shannon Zimmerman is the lead analyst for the Fool's Champion Funds newsletter service and doesn't own any of the companies mentioned. Microsoft is a Motley Fool Inside Value recommendation. The Fool has a strictdisclosure policy.
