These past few months have been quite the roller coaster. Uncertainty breeds volatility, and that has surely been the case as of late, as many otherwise solid stocks have been taken for a wild ride. The good news for investors is that there are still a lot of solid bargains out there, just waiting to be snapped up.
For example, scores of stocks are currently trading at P/E multiples substantially below that of the broader market. These companies include mega-cap giants such as ExxonMobil
But out of all the potential opportunities out there, where are smart investors funneling their money right now? The answer may surprise you.
The new hot spot
According to estimates from New York City consulting firm Strategic Insight, net flows into actively managed stock and bond funds should reach close to $265 billion by the end of the year -- the second-highest yearly amount on record.
You read that right: The fund industry is on track to take in more money than it has in 14 years. (The highest inflows on record came back in 1993, when more than $296 billion found its way into actively managed funds' coffers.)
While much of the recent investor frenzy has been focused on exchange-traded funds and closed-end funds, the demand for actively managed funds has been on the rise as well. More and more investors appear to be turning to the best minds in the investment world for help in managing their portfolios.
The best of the best
Last year's Pension Protection Act made the self-directed, fund-holding 401(k) the retirement vehicle of the future. So perhaps a combination of that legislation, the decline of the traditional pension, and the sizzling worldwide stock markets has caused these massive fund inflows.
Whatever the case, more investors are leaning on mutual funds, which can be a great way to put your savings in the hands of some of the greatest investing talent of our day.
Unfortunately, the wrong funds can be an equally great way to annihilate your capital.
The fund checklist
Not to fear, though. It's not impossible to build a portfolio of mutual fund winners on your own. You just need to know what to look for and how to get started.
Start by identifying funds with superb long-term track records -- at least five years. Next, look at how the fund has fared during both good and bad market environments. You'll want to get a sense of how the fund manager has steered the ship in both situations.
On that point, be sure to stick to funds with a longstanding manager (or management team). A manager with more experience typically translates into better returns for fundholders.
The last point is perhaps the most important: Whatever you do, don't overpay for your funds. Outrageous expenses are one of the quickest ways to ensure your portfolio ends up trailing the market. Favor load-free funds with lower-than-average expense ratios.
Foolish final thoughts
These are some of the core criteria we use at the Fool's fund-picking service, Champion Funds. These screening criteria have worked exceptionally well for us thus far, with Champion Funds picks outpacing their benchmarks since inception. If you'd like to read more about our fund-finding philosophy, or if you'd like to see our entire lineup of recommended funds, a free 30-day trial is only a click away.
Amanda Kish heads up the Fool's Champion Funds newsletter service. At the time of publication, she did not own any of the companies mentioned herein. Bank of America and Alliance Resource Partners are Motley Fool Income Investor selections. Click here to find out more about the Fool's disclosure policy.