I am unwritten,
Can't read my mind,
I'm undefined.
I'm just beginning--
The pen's in my hand,
Ending unplanned.

--"Unwritten," Natasha Bedingfield

One year ago, two of our top Fools tussled about the value of mutual funds. Tim Beyers held up the virtues of these investment vehicles to the light, while Chuck Saletta argued that the benefits are not worth the costs. The National Poetry Month contribution above, this time from the realm of popular culture, might give the ending away.

Gentlemen, start your engines!
Tim opened up with a collection of market-beating funds and their brilliant managers. The list included:

  • Polaris Global Value (FUND: PGVFX), which had beaten its comparable benchmark by more than 9% since joining the Motley Fool Champion Funds portfolio in November, 2005.
  • Bill Miller, who, as head of Legg Mason Value Trust (FUND: LMVTX) had managed to beat the S&P 500 for 15 straight years.
  • And finally, Martin Whitman, who as founder and lead manager of Third Avenue Value (FUND: TAVFX) had absolutely crushed the S&P 500 and its typical Morningstar peer over the last 10 years. He's also a fellow Syracuse grad, which, naturally, makes him a genius.

"But," Tim said, "that's not the real reason I should win this debate. This is: Some of the world's best investors have been, or still are, fund managers. And we've taken lessons from many of them to educate, amuse, and enrich you here at Fool.com."

Chuck shot back with some serious caveats. "Mutual funds are a tremendous way for some people to build wealth," he said. "Unfortunately for fund investors, those people are generally the owners of the fund companies themselves. Consider the case of Legg Mason Value Trust. The fund stands in a very elite club, having successfully outperformed the S&P 500 index for each of the last 15 years. Yet its performance has been put to shame by one interesting security -- the stock of its parent company, Legg Mason (NYSE: LM)." Then he pointed us to a comparative chart, showing the company stock outperforming its own star fund over the last 18 years, and asked why we should even bother with the fees and trading restrictions mutual funds must follow, when we can beat the market with our own stock picks.

Checkpoint one
Tim caught the rebound, noting that investing on your own takes time and money -- and isn't the 1% expense ratio of a decent fund worth it for the time saved by hiring the full-time services of expert stock pickers? He'd say so.

"How many of you have stayed with a stock that dropped 20% on nothing?" he asked. "Now, how many of you bought more when that occurred, as John Neff did as the manager of Vanguard Windsor (FUND: VWNDX)? That's what I thought."

But Chuck still wasn't convinced. He pointed out that your market-beating success depends mightily on what market you're trying to beat. For example, the Tweedy Browne Global Value (FUND: TBGVX) fund had beaten the S&P 500 handily over the previous eight months. Yet that global fund was trailing the broad international benchmark provided by Vanguard Total International Stock Index (FUND: VGTSX) by a good distance.

"If you're looking for an aggressive, international style to improve your potential returns, that's fine," said Chuck. "Just be sure to check your choices against an appropriate benchmark to see how well you're really doing."

Tale of the tape
Thus the bell rang, and our readers set about casting their votes. When the dust settled, the clear winner was Tim: 70% of 292 voters sided with the bull case, while 20% voted for the bear, and 10% wanted to make their ambivalence known.

So goes the popular vote. A year on, who comes out on top?

It's a bit tricky to measure the success of such a broad concept as mutual funds against the overall market, of course. But I can look at how the two paragons of virtue have held up over this past year's bumpy ride.

Let's start with Tim. Over the past year, exactly one of his examples has beaten the S&P 500: Polaris Global Value. I was going to include an even longer view, but a five-year window would hand most of the performance assessment back to times the guys already knew about. So let's not. Tim's argument, then, that full-time stock pickers should beat the market if you pick the right managers -- it didn't hold up this time. Even Bill Miller's 15-year streak was snapped.

As for Chuck, his evidence showed Legg Mason outperforming its own top-flight fund, and the Tweedy global fund beating the S&P, but losing to the all-inclusive international market. He's still exactly right about the global fund. Picking the benchmark fund rather than the hand-picked top performer would have given you another few percentage points over the past year, even as both of them left American markets far behind.

On the other hand, Legg Mason dropped off a cliff just a month after the original Duel, and has lost about 20% over the year. Meanwhile, the Legg Mason Value Trust gained 10% and nearly kept pace with the S&P 500. So Chuck was right on some points, wrong on others.

Do we have a clear-cut winner with a one-year perspective? Not really. I'd be inclined to call this particular Duel a draw, partly on a lack of measurable results and partly on mixed performance evidence. Maybe by this time next year, we'll have a clear-cut winner!

Polaris Global Value, Third Avenue Value, and Tweedy Browne Global Value are all selections from the Fool's Champion Funds newsletter, which looks for mutual funds whose managers earn their fees through exceptional performance. See what Champion Funds has to offer you with a 30-day free trial.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. He owns exactly one mutual fund, and it wasn't mentioned today. Legg Mason is a Motley Fool Inside Value pick. You can check out Anders' holdings if you like, and Foolish disclosure will make your day, every day.