Fool.com: 18 Mutual Funds to Watch [Special] May 21, 2002

If you've spent much time around the Fool, you've heard this familiar refrain of ours -- it goes something like this: "The vast majority of mutual funds underperform the market average. We recommend investing in index funds. If you can't beat the market average, you might as well meet it." Makes sense.

We go on to explain how you can aim to do better than average if you take the time to learn to select, evaluate, and invest in individual stocks. True enough. But there's one thing we probably haven't said enough, and that's that there's another way to beat the market average -- by investing in those rare mutual funds that do tend to beat the market.

Below are 18 mutual funds with admirable track records. Some are well known to writers here at Fool HQ and several have managers whom we've learned from. Others are less well known, and I found them simply by screening for funds with promising characteristics and strong track records. Many are fairly small, which can be an advantage for a fund, many have low turnover (generating fewer commissions costs and taxable capital gains), and many are rather concentrated, not spreading out their dollars over hundreds of securities. Almost all are no-load, sport Morningstar's top "star rating," and have affordable minimum initial investments.

I don't recommend that you invest in any of them. I'm not that familiar with most of them. But if you're looking for one or a few good stock funds, these certainly look promising and are well worth some investigation. Morningstar.com is a great place to start -- as is each fund's company website. Find and read as much as you can about a fund's management -- read their letters to shareholders, for example, to get a sense of their character and investment style. Check out the fund's philosophy, track record, fees, size, and minimum investment amount, too.

Most of the data below were gathered from Morningstar.com.

Ameristock (ticker: AMSTX)
Morningstar category: Large-cap value
3-yr. avg. return: 4.22%
5-yr. avg. return: 14.35%
Expense ratio: 0.83%
Minimum initial purchase: $1,000
Manager tenure (yrs.): 4
Median market cap. ($mil.): 57,707
Net assets ($mil): 1,498
Turnover: 6%
Morningstar report
Fund website

Babson Shadow Stock (ticker: SHSTX)
Morningstar category: Small-cap value
3-yr. avg. return: 18.26%
5-yr. avg. return: 15.11%
Expense ratio: 1.03%
Minimum initial purchase: $1,000
Manager tenure (yrs.): 3
Median market cap. ($mil.): 208
Net assets ($mil): 101
Turnover: 29%
Morningstar report
Fund website

Berger Midcap Value (ticker: BEMVX)
Morningstar category: Mid-cap value
3-yr. avg. return: 20.40%
5-yr. avg. return: -- N/A
Expense ratio: 1.22%
Minimum initial purchase: $2,500
Manager tenure (yrs.): 3
Median market cap. ($mil.): 2,231
Net assets ($mil): 804
Turnover: 116%
Morningstar report
Fund website

Clipper Fund (ticker: CFIMX)
Morningstar category: Large-cap value
3-yr. avg. return: 14.71%
5-yr. avg. return: 16.58%
Expense ratio: 1.08%
Minimum initial purchase: $5,000
Manager tenure (yrs.): 18
Median market cap. ($mil.): 14,215
Net assets ($mil): 4,253
Turnover: 23%
Morningstar report
Fund website

Dodge & Cox Balanced (ticker: DODBX)
Morningstar category: Domestic hybrid
3-yr. avg. return: 9.44%
5-yr. avg. return: 11.88%
Expense ratio: 0.53%
Minimum initial purchase: $2,500
Manager tenure (yrs.): 22
Median market cap. ($mil.): 11,442
Net assets ($mil): 6,233
Turnover: 21%
Morningstar report
Fund website

Dodge & Cox Stock (ticker: DODGX)
Morningstar category: Large-cap value
3-yr. avg. return: 9.93%
5-yr. avg. return: 13.79%
Expense ratio: 0.54%
Minimum initial purchase: $2,500
Manager tenure (yrs.): 23
Median market cap. ($mil.): 11,791
Net assets ($mil): 9,948
Turnover: 10
Morningstar report
Fund website

Fidelity Low-Priced Stock Fund (ticker: FLPSX)
Morningstar category: Small-cap value
3-yr. avg. return: 20.03%
5-yr. avg. return: 16.50%
Expense ratio: 1.00%
Minimum initial purchase: $2,500
Manager tenure (yrs.): 12
Median market cap. ($mil.): 1,032
Net assets ($mil): 17,241
Turnover: 44%
Morningstar report
Fund website

FMI Common Stock Fund (ticker: FMIMX)
Morningstar category: Mid-cap blend
3-yr. avg. return: 13.21%
5-yr. avg. return: 13.25%
Expense ratio: 1.2%
Minimum initial purchase: $1,000
Manager tenure (yrs.): 12
Median market cap. ($mil.): 1,949
Net assets ($mil): 56
Turnover: 47%
Morningstar report
Fund website

Jensen Portfolio Fund (ticker: JENSX)
Morningstar category: Large-cap growth
3-yr. avg. return: 9.92%
5-yr. avg. return: 13.17%
Expense ratio: 0.95%
Minimum initial purchase: $1,000
Manager tenure (yrs.): 6
Median market cap. ($mil.): 20,607
Net assets ($mil): 371
Turnover: 7%
Morningstar report
Fund website

Legg Mason Value Fund (ticker: LMVTX)
Morningstar category: Large-cap value
3-yr. avg. return: -5.46%
5-yr. avg. return: 12.12%
Expense ratio: 1.69%
Minimum initial purchase: $1,000
Manager tenure (yrs.): 20
Median market cap. ($mil.): 18,166
Net assets ($mil): 9,140
Turnover: 27%
Morningstar report
Fund website

Liberty Acorn Fund (ticker: ACRNX)
Morningstar category: Small-cap growth
3-yr. avg. return: 15.63%
5-yr. avg. return: 16.28%
Expense ratio: 0.83%
Minimum initial purchase: $1,000
Manager tenure (yrs.): 19
Median market cap. ($mil.): 1,327
Net assets ($mil): 4,656
Turnover: 29%
Morningstar report
Fund website

Longleaf Partners Fund (ticker: LLPFX)
Morningstar category: Mid-cap value
3-yr. avg. return: 5.91%
5-yr. avg. return: 14.69%
Expense ratio: 0.94%
Minimum initial purchase: $10,000
Manager tenure (yrs.): 8
Median market cap. ($mil.): 8,579
Net assets ($mil): 4,711
Turnover: 18%
Morningstar report
Fund website

Mairs & Power Growth Fund (ticker: MPGFX)
Morningstar category: Large-cap blend
3-yr. avg. return: 13.13%
5-yr. avg. return: 15.07%
Expense ratio: 0.78%
Minimum initial purchase: $2,500
Manager tenure (yrs.): 22
Median market cap. ($ mil.): 12,152
Net assets ($mil): 873
Turnover: 15%
Morningstar report
Fund website

Oakmark Fund (ticker: OAKMX)
Morningstar category: Large-cap value
3-yr. avg. return: 3.89%
5-yr. avg. return: 8.59%
Expense ratio: 1.15%
Minimum initial purchase: $1,000
Manager tenure (yrs.): 2
Median market cap. ($ mil.): 16,060
Net assets ($mil): 4,096
Turnover: 21%
Morningstar report
Fund website

Olstein Financial Alert Fund (ticker: OFALX)
Morningstar category: Mid-cap value
3-yr. avg. return: 17.83%
5-yr. avg. return: 22.57%
Expense ratio: 2.18%
Minimum initial purchase: $1,000
Manager tenure (yrs.): 6
Median market cap. ($ mil.): 2,797
Net assets ($mil): 1,132
Turnover: 107%
Morningstar report
Fund website
Fool article

Royce Low-Priced Stock Fund (ticker: RYLPX)
Morningstar category: Small-cap value
3-yr. avg. return: 27.45%
5-yr. avg. return: 21.5%
Expense ratio: 1.49%
Minimum initial purchase: $2,000
Manager tenure (yrs.): 2
Median market cap. ($ mil.): 622
Net assets ($mil): 739
Turnover: 56%
Morningstar report
Fund website

Third Avenue Value (ticker: TAVFX)
Morningstar category: Small-cap value
3-yr. avg. return: 14.38%
5-yr. avg. return: 12.27%
Expense ratio: 1.07%
Minimum initial purchase: $1,000
Manager tenure (yrs.): 11
Median market cap. ($ mil.): 2,200
Net assets ($mil): 2,891
Turnover: 16%
Morningstar report
Fund website

Weitz Value (ticker: WVALX)
Morningstar category: Mid-cap value
3-yr. avg. return: 6.96%
5-yr. avg. return: 18.90%
Expense ratio: 1.11%
Minimum initial purchase: $25,000
Manager tenure (yrs.): 16
Median market cap. ($ mil.): 5,220
Net assets ($mil): 4,370
Turnover: 13%
Morningstar report
Fund website

As you review these funds, keep in mind that:

• For comparison purposes, the S&P 500 returned about -5.41% and 6.73%, respectively, annualized over the last 3- and 5-year periods.
• Some of these funds' managers trade very infrequently and in seeking long-term growth, may be settling for a poor short-term performance. Don't write any of them off due to low short-term results. Dig deeper and review their overall performance.
• A typical turnover ratio for stock mutual funds is 100%, so don't think that a ratio of 50% is high just because you see some single-digit ones here.
• Many funds have lower initial purchase amounts for purchases through IRAs. Look into this, if it applies to you.
• Look beyond low management tenures. Some here reflect solid, established managers taking the helm of a new fund, and others reflect experienced understudies taking over.
• Some of these managers or companies have other funds that you might be interested in.
• Many of these funds belong to smallish financial companies with interesting websites. Poke around them and learn more about their philosophy.

If you're excited by this list, here's more good news: There are even more mutual funds that deserve your consideration. This is not a comprehensive list. (I'm already thinking of a few more that I could have added here.)

It's true that out of the thousands and thousands of mutual funds out there, most turn in unimpressive performances, but there are still many truly exceptional funds that warrant your attention, if you're interested in investing in mutual funds. You just have to find them. Share any funds you like or any thoughts on these funds on our Mutual Funds discussion board!

If you don't have the time to study up on mutual funds or individual stocks, then I do recommend our friend, the index fund. Learn more about mutual funds in general (including what many of the terms in this feature, such as "expense ratio," mean) and all about index funds here at the Fool. Or take our self-paced online seminar on picking the best mutual funds. Also, if you're looking for a new or better brokerage, drop by our Discount Broker Center. Most brokerages let you buy into a variety of mutual funds, as well as stocks.