The Final Four is here, and the best of the best in college basketball are ready to square off to determine the NCAA champion. You can feel the electricity in the air as the country suffers its annual dose of March Madness.
While it may not be great for people's office pools that no No. 1 seed is in the Final Four, I think it's been exceptionally entertaining. It just goes to show the breadth of talent in college basketball that little George Mason could knock off Michigan State, North Carolina, and Connecticut in less than two weeks.
In the spirit of the NCAA Tournament, I asked our stock newsletter analysts which fund managers they'd consider a worthy Final Four. Here's what I found.
The Foolish Final Four
Surprise, surprise that Motley Fool Hidden Gems' analyst Tom Gardner picked master small-cap investor Charles Royce. The market veteran has an amazing track record of returns based on solid research of small companies at bargain prices. Some of his latest selections include Foundary Networks
Income Investor's lead analyst Mathew Emmert went with Legg Mason's superstar manager Bill Miller. Miller would seem to be a big favorite in any Final Four showdown, given that his Value Trust fund has beaten the market 15 years in a row. And with companies like Electronic Arts
Philip Durell of Inside Value stayed close to home with David Dreman. Dreman, a fellow Canadian, has a nose for downtrodden companies like medical equipment maker Kinetic Concepts
Wrapping up our Foolish Final Four of Fund Managers, Tom's Rule-Breaking brother David Gardner chose Michael Buek, head of the Vanguard 500 Index Fund.
I know what you're thinking: Why would David recommend an index fund? That won't beat the market. In fact, it will always slightly underperform the market after fees.
Yeah, but if you're not a stock picker and don't have the time or inclination to research fund managers yourself, an index fund is a great place to put your money, because many fund managers lag the market's returns. And why would you want to overpay for underperformance?
To get to the Final Four
But I'll bet some of you out there wouldn't be satisfied with an index fund. You're Foolish. You don't want to match the market's returns. You want to beat them. And that's where Motley Fool Champion Funds can help. Learning from the practices of our Final Four of Fund Managers, here are three things that Shannon looks for when selecting market-beating managers.
- Experience is essential. All of our Final Four active fund managers have more than 15 years of experience. They've been up and down the court many times, facing different types of defenses. And with everything that was thrown at them, they still managed to beat the market during their respective tenures.
- Commitment to a philosophy is a must. Good ideas from fund managers need time to bear fruit, and sometimes it can take years for those ideas to work out in the market. So the last thing you want a fund manager to do is to start shifting his style to chase returns. That means he gives up on ideas too quickly, and that, my friend, is a sure way to perennial underperformance.
- Expense control is critical. Not only do management fees have to be reasonable, but portfolio turnover should also be low, to save on transaction costs and taxes. In fact, despite Shannon agreeing with Mathew that Bill Miller is a phenomenal manager, Shannon won't recommend Value Trust because of its high fees (1.68% vs. about 1% for the industry average).
A proven leader
Great managers are out there, and Shannon Zimmerman uses these three criteria in his Champion Funds newsletter to help find them. He knows your time is limited, so he's done the heavy lifting for you. And in clear, simple language, Shannon lays out the case for plenty of fund managers who could make it to the Final Four and explains where their funds can fit into your portfolio.
Twenty-nine out of Shannon's 37 recommendations are beating the market as of March 16, 2006, and only one has negative returns (-1.5%). That's an impressive record! And to show you how he does it, Shannon invites you to be his guest at Champion Fundsfree for 30 days. While you're there, you'll have complete access to all of his recommendations. But more importantly, you'll be able to read all of the supporting information to understand why he recommended those funds.
In the NCAA Tournament, good coaching tends to prevail. When searching for solid mutual funds, make sure your fund has a winning coach.
Electronic Arts is a Motley Fool Stock Advisor pick.
Are you ready for The Motley Fool's Stock Madness 2006? The Motley Fool's best analysts are squaring off against each other with their best ideas. And you, the reader, get to vote on which companies you think are the best, eventually crowning the Stock Madness 2006 champion