I love discovering new and exciting mutual funds. The other day, I learned about the Hodges (HDPMX) fund. What caught my attention was this: Its five-year compound average annual return was 30%! That's darn good, and it's the kind of performance I'd love to add to my personal portfolio. But often, when something looks too good to be true, it is. So I dug a little deeper.

Not so good
I found a bunch of things that weren't ideal about the fund. For example, its expense ratio (annual fee) is 1.42%, which is on the steep side.

The main caution I can offer, though, is a closer look at those annual returns. Yes, the five-year average is 30%. But look at the actual numbers for the past five years:



2007 year to date












Source: Morningstar.

See anything interesting? In 2003? You got it -- an 80% gain. That's impressive, yes, but it also heavily influences the average. This is a great illustration of why it's valuable to look closely at more than a few numbers. The fund's 10-year average annual return is ... just less than 10% (which still beats the market, actually).

But not so bad, either
Fortunately, I can't really complain too much about this fund. I actually see a lot to like in it. Its returns have usually topped the market. Its minimum investment is a low $250, and its managers have been on the job for more than a few years. Its assets are spread out among large and small companies relatively evenly:

Top Holdings

Percentage of Portfolio

Transocean (NYSE:RIG)


Potash (NYSE:POT)


Commercial Metals (NYSE:CMC)


Burlington Northern (NYSE:BNI)




Source: Morningstar.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.