There is a very short list of decent actively managed mutual funds. As you probably know, most mutual funds fail to beat the S&P 500, but here's one that has outperformed the index since 1993. Selected Funds American Shares (SLASX), managed by Christopher Davis and Kenneth Feinberg, has continuously surpassed the S&P each year since they began managing the fund. During the past thirteen years, the annualized returns for Selected Funds American Shares versus the S&P are 13.1% and 8.7%, respectively.

What about fees? Everyone knows you can buy stocks directly and avoid management fees altogether. While Selected Funds American Shares has a very competitive expense ratio of 0.9%, Davis felt investors who bypassed brokerage trading platforms should not be compelled to pay 12B-1 marketing charges. Therefore, he created Selected Funds American Shares Class D, which is available sans 12B-1 fees. Investors who can pony up $10,000 can receive world class management for only 0.6% in annual expenses -- this makes for a very Foolish investment, indeed.

Selected Funds employs a strategy that focuses on the long-term horizon coupled with patience. Their last annual report showed a portfolio turnover of only 4%. This strategy minimizes capital gains distributions and trading costs, which will ultimately lead to higher returns for investors.

The Fund breaks its holdings into three "buckets." The largest percentage of the portfolio is what the managers consider "strong global leaders," such as American Express (NYSE:AXP) and Berkshire Hathaway (NYSE:BRK-A). A smaller percentage of the portfolio consists of companies that are underfollowed or currently overlooked. The fund's rise in allocation to energy stocks (11%) shows what happens when you buy companies when no one else wants them. DevonEnergy (NYSE:DVN) and ConocoPhillips (NYSE:COP), for example, were scooped up at very attractive valuations. Lastly, the smallest percentage of the portfolio consists of companies that "are controversial and face negative headlines." Everyone witnessed the downfall of former Tyco (NYSE:TYC) CEO Kozlowski, which resulted in a drop in Tyco's stock price; Davis used this as an opportunity to add to their holdings in Tyco.

In every quarterly report, Selected Funds mentions three companies that underperformed. In addition, they keep a stock certificate of each mistake on their wall. It reminds them that they are not perfect; heck, only fools (lowercase "f") fail to learn from their goofs. It's little wonder that in 2005 Morningstar chose Davis and Feinberg as Domestic Equity Fund Managers of the year. I don't agree with everything Morningstar does, but they got this one right.

For more Foolish analysis on the mutual funds scene, try a free 30 day trial to the Motley Fool Champion Funds newsletter.

Tyco is a Motley Fool Inside Value pick.

Fool contributor Buz Livingston, CFP, welcomes your feedback. He owns shares of SLASX. The Fool has an ironclad disclosure policy.