The Investment Company Institute, the fund industry's research and lobbying arm, reports that approximately 7,100 stock and bond funds are currently vying for your hard-earned investment dollars. The vast majority of these are market-lagging duds -- funds that make you pay for the "privilege" of long-term underperformance.
There are diamonds among the dross, however, and since March 2004, I've been uncovering these gems for subscribers to the Fool's Champion Funds newsletter service.
At the risk of sounding immodest, we've had a fair amount of success. Our complete lineup of Champs has trumped the market by more than 10 percentage points as I type, and our three model portfolios are beating their benchmarks, too.
So what's the secret of the newsletter's success? Here are three key factors.
1. We don't overpay.
For starters, I don't recommend funds with luxury-item price tags. The typical domestic-stock fund will ding you roughly 1.4% each year; our average Champ charges less than 1%.
Moreover, these funds cover all corners of the market. Whether you're a growth-oriented investor with a hankering for the likes of Microsoft
2. We invest in the manager, not the fund.
All too often prospective investors make decisions based on a fund's lofty star rating or Lipper leader score. Don't do it. Those are helpful tools, but they're purely backward-looking measures, and they may not reflect the fund's performance on the current manager's watch. A fund can only be as strong as its stock-picker-in-chief, and as I go about the business of finding tomorrow's mutual fund winners today, it's the manager's track record I focus on, not that of the fund itself.
3. We conduct ongoing due diligence.
Funds have it all over stocks when it comes to peace-of-mind investing, but that doesn't mean you can set 'em and forget 'em. Since the newsletter opened for business, five of our picks have closed -- i.e., they've stopped accepting money from new investors and, in one case, most current shareholders, too -- and two have received management makeovers. Whenever such events occur, I examine the facts with a proverbial fine-tooth comb and make timely recommendations to subscribers about how to proceed.
Beyond that, ongoing annual rebalancing of your fund portfolio is a must. The market has a habit of throwing carefully calibrated asset-allocation game plans (and you do have one of those, right?) off-kilter. Your mission as a savvy fund investor is to ensure that your portfolio remains tailored to your investing timeline and tolerance for risk -- no matter which way the market's wind blows.
The Foolish bottom line
In the current issue of Champion Funds, we complete the process of rebalancing our model portfolios. If you'd like to have a look at the way we've recalibrated, I encourage you to snag a free guest pass to the newsletter. Your pass provides 30 days of access to the current issue of Champion Funds, as well as our back-issue archives. You can also sneak a peek at our complete list of market-beating mutual funds.
Sound useful to you? Excellent. Just click here to begin. I have a hunch you'll like what you see. But if not, you're free to cancel, no questions asked.
This article first appeared on Jan. 17, 2006. It has been updated.
Shannon Zimmerman runs point on the Fool's Champion Funds newsletter service.He does not own shares of any stock mentioned in this article. Microsoft and Pfizer are Motley Fool Inside Value recommendations. The Motley Fool has adisclosure policy.
