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:

Period

Return

2007 year to date

14.8%

2006

17.8%

2005

17.3%

2004

24.5%

2003

80.2%

2002

(26.3%)

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)

3.30%

Potash (NYSE:POT)

2.80%

Commercial Metals (NYSE:CMC)

2.73%

Burlington Northern (NYSE:BNI)

2.64%

Cisco (NASDAQ:CSCO)

2.44%

Source: Morningstar.

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Longtime Fool contributor Selena Maranjian doesn't own shares of companies mentioned in this article. Try any of our investing services free for 30 days. The Motley Fool is Fools writing for Fools.