Let's say you've decided that it's smart to stop chasing last year's hot mutual funds (good call). Instead, you want a fighting chance of uncovering the big winners of the next few years. How do you find these future superstars?
Four words: Young fund, seasoned management.
Just imagine what it would have been like if Peter Lynch (nearly 30% annualized returns over 13 years at Fidelity Magellan) freed himself from the restraints of managing billions of dollars and started anew with a smaller fund. That would be a formula for success.
The odyssey
The "Up & Coming" corner is a regular feature in Motley Fool Champion Funds. There, Shannon Zimmerman highlights the most promising of the young funds he's been tracking over the past several months. In January of last year, for instance, he alerted readers to a couple of funds even before they opened for business.
Here's the story: The management team for the Vanguard Primecap (VPMCX) and Vanguard Capital Opportunity (VHCOX) funds had made a ton of money for shareholders. They did it using a contrarian strategy that identifies beaten-down stocks that are ready for a comeback. Unfortunately, these funds were closed to new money.
With knowledge of that team's expertise, Shannon was excited to discover that it would be launching new funds under the Primecap banner. What's more, two of them would have portfolios nearly identical to the Vanguard offerings: Odyssey Growth (POGRX) and Odyssey Aggressive Growth (POAGX). Even better, the funds would come with reasonable expense ratios.
Top Five Holdings
| Odyssey Growth | Odyssey Aggressive Growth |
|---|---|
| Eli Lilly (NYSE:LLY) | Micromuse (NASDAQ:MUSE) |
| Novartis (NYSE:NVS) | ASML Holding NV (NASDAQ:ASML) |
| Medtronic (NYSE:MDT) | Conceptus (NASDAQ:CPTS) |
| Southwest Airlines (NYSE:LUV) | Akamai (NASDAQ:AKAM) |
| ASML Holding NV (NASDAQ:ASML) | JetBlue (NASDAQ:JBLU) |
The envelope, please ...
Both funds wound up easily beating the market in 2005. I'll be the first to tell you that past performance doesn't guarantee future success, but the management team's pedigree should count for a lot in the years ahead, and Shannon is still excited about their prospects.
The January 2006 Up & Coming column of Champion Funds highlights exactly what we're talking about today: Young fund, seasoned management. In this case, Shannon discusses a new fund run by a proven manager who racked up a total return of more than 450% at his previous shop.
Shannon is offering a special free trial to the newsletter, which allows you to access every pick he's ever made and every Up & Coming column -- including January's. His recommendations are beating the market and equivalent benchmarks 23% to 11%. Try it for free for 30 days, and if you don't like it, it won't cost you a penny.
Rex Moore's fantasy baseball team is beginning to take shape. He owns no companies mentioned in this article. Akamai is a Rule Breakers recommendation. Eli Lilly is an Income Investor recommendation. JetBlue is a Stock Advisor recommendation. The Fool has adisclosure policy.
