Here Come the Category Killers

These funds have beaten their peers in each of the past 10 years.

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By Christine Benz | 10-26-11 | 06:00 AM | E-mail Article

In my "true confessions" video last week, I noted that one of my biggest investment mistakes was underestimating the value of holdings that simply chug along, edging past their peers each year, often by less-than-exciting amounts. But as I've gained more experience as an investor, I've learned that the steady-as-she-goes path can be appealing.

About the Author

Christine Benz is Morningstar's director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. Follow Christine on Twitter: @christine_benz and on Facebook.

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Consistent funds may not shoot to the top of the charts over shorter time frames, but their steady performance can be a good sign that a manager isn't taking outsized risks. Moreover, steady investments may be easier to own (and make money on) than those that chart a more streaky course. Big peaks and troughs stoke investors' tendencies to buy high and sell low; consistent calendar-year returns in the 33rd percentile do not.

To help shine the spotlight on funds with very long track records of strong and consistent results, we used our  Premium Fund Screener to search across asset classes for funds whose returns had beaten their category averages in each of the past 10 years. We then layered on additional screens for accessibility for do-it-yourself investors--no brokerage commissions or purchase restrictions as well as minimum initial purchase amounts of less than $10,000.

The resulting list is surprisingly compact and includes both core equity offerings as well as go-anywhere funds that hold both stocks and bonds. Premium Members can click  here to view the screen and its output or tweak it to their own specifications.

Below, I've profiled three of the topnotch offerings that made it through the screen.

 FPA Crescent (FPACX)
It's a mistake to characterize this moderate-allocation fund as a slow and steady performer, as it has shot to the top of its peer group in more than a few individual calendar years. But because caution is its watchword, some of its best relative returns have come in down-market years--the dotcom debacle of 2001 and 2002, for example, as well as 2008's financial crisis. Manager Steve Romick describes himself as a "free-range chicken," meaning that he can go anywhere in search of opportunities that offer good upside potential as well as a high margin of safety. Note that an emphasis on smaller-cap stocks contributed to its relative success for much of the past decade, a period in which smaller names have generally thrived at the expense of mega-caps. In recent years, however, Romick has found value in beaten-down blue chips such as  Wal-Mart (WMT) and  Microsoft (MSFT).

 Manning & Napier Pro-Blend Maximum (EXHAX)
Although it lands in Morningstar's large-blend category, this fund has the latitude to get defensive with a portion of its portfolio: Over the past decade it has staked 85% to 90% of its portfolio in stocks with the remainder in cash and investment-grade and government agency bonds. That cash/bond cushion has helped it hold up better than pure stock funds over the past decade, a rough environment for equities, but the fund has more to recommend it than just a fortuitous asset mix. A team of extremely long-tenured portfolio managers oversee the fund, employing a strategy that overlays bottom-up security selection with macroeconomic research. Like the aforementioned FPA fund, this offering has often emphasized some mid-caps and smaller large caps relative to its peer group, and that could work against it if the market continues to favor mega-caps, as it has recently.

 Vanguard Total Stock Market (VTSMX)
Not surprisingly, our screen turned up a few broad-market index funds, where the M.O. is consistently above-average year-to-year performance that eventually translates into solidly above-average long-term results. Vanguard's index funds are among the cheapest around--this one charges a mere 17 basis points and provides exposure to a huge swath of the stock market. (The Admiral shares, which investors can access with a $10,000 initial investment, come even cheaper--0.07%--and made director of fund research Russ Kinnel's recent list, "Seven of the Best Index Funds.") This fund's performance has been slightly better than sibling  Vanguard 500 Index (VFINX) over the past decade, in part because of its dash of small- and mid-cap names, but over time the two funds' performance has been closely correlated.