Dang!
Nothing like launching a financial advisory service like my Motley Fool Champion Funds directly into a market sell-off. In a matter of weeks, the mighty S&P 500 is off more than 4%, the Dow is down nearly 5%, and the high-flying Nasdaq has given back nearly 10%. Yes, my fund picks have taken it on the chin, too.
Performance anxiety?No one likes to underperform, but when it comes to judging mutual funds, two months is a drop in the bucket. For good reason, savvy investors don't go near a fund until it (or its managers) has at least a five-year track record. I'd suggest that before you break out your checkbook and send any of your hard-earned dollars to a fund company, you should investigate how the fund's manager has fared over several market cycles. And you should certainly favor funds whose managers stick to their strategies when market forces whip up a fierce headwind.
Chasing last year's hot sector, after all, is almost always a loser's game. Moreover, it's precisely when a fund's investing "style" (i.e., growth, value, or some combination thereof) falls from favor that a manager who sticks to his knitting can snap up his wish list on the cheap.
Small caps, for example, have dominated the relative-performance game for so long that market behemoths such as Microsoft (NASDAQ:MSFT), General Electric (NYSE:GE), IBM (NYSE:IBM), and Pfizer (NYSE:PFE) are downright tempting. And don't get me started on the likes of Citigroup (NYSE:C), Merck (NYSE:MRK), and Home Depot (NYSE:HD). For the time being anyway, those blue chips are trading like blue-light specials. Not for nothing are some of the industry's best and brightest moving up the capitalization scale.When quality goes on sale
The same principle applies to buyers of funds, of course, though with a twist. If you've picked the right funds for the right reasons to begin with, a market downturn like the one we're experiencing now provides a terrific opportunity to buy more. And I am 100% convinced that with Champion Funds, we have picked the right funds for the right reasons. Consider Exhibit A:
Avg. U.S. | Champion Funds | |
|---|---|---|
| Manager Tenure | 4.6 yrs. | 8.4 yrs. |
| Expense Ratio | 1.53% | 1.01% |
| 12b-1 Fee | 0.43% | 0.00% |
| Vs. S&P: 5 Years | 0.47% | 10.2% |
| Turnover | 113% | 31% |
Impressive, no?
Impressive, yes. And the upshot is that as their net asset values (NAVs) have fallen, our funds have simply gotten cheaper and, therefore, even more attractive than when I first highlighted them. I can't share their names here (though you're just a free trial away), but as you can see, the picks I've made thus far all sport experienced management teams, low turnover and expenses, and superior performance over a meaningful period. In short, these are the thoroughbreds of the mutual fund industry.
What's more, not a single one expects you to pony up a red cent to pay for marketing and distribution costs -- fees that surely ought to be borne by the companies behind the funds and not the investors in the funds themselves. (None, by the way, has been implicated in Eliot Spitzer's ongoing investigation of trading abuses in the fund industry. Indeed, all hail from among the most shareholder-friendly shops in the business.)
The bottom line
Each line item in the table above is among the critical factors investors should consider while mulling the prospectuses and the annual reports of the funds they're considering buying. Stock-picking strategies, tax efficiency, and how a fund would work in the context of your overall portfolio should also be high on your list of questions. They certainly are on mine as I do my work each month for Champion Funds.
But that said, I can't promise that my funds will outperform in the future. No investment comes with that guarantee. So when it comes to picking mutual funds for the long haul (which is the only way to invest), your best bet is to put the odds in your favor by zeroing in on just those that come equipped with competitive advantages -- qualities such as those cited above that should give them a leg up on the competition in the years ahead. As with most things, in other words, it pays to do your homework
Not into homework? Shannon Zimmerman provides a nifty cheat sheet each month in his Motley Fool Champion Funds. Click here to try it for free.
Shannon Zimmerman doesn't own any of the companies mentioned above.The Motley Fool has adisclosure policy.
