The 25 Best Mutual Funds -- 2007
If you feel confused, even dazed, by the proliferation of mutual funds in the marketplace, you're forgiven. Somehow, there are almost as many funds available as there are listed stocks, and most of them aren't exactly shy about tooting their own horn. So for our annual Kiplinger 25 survey, we've explored this vast universe for you and picked the best stock and bond funds to help you meet your wealth-building goals.
Our rigorous selection process is part science, part art. We only consider funds that do not levy a sales load, and we generally avoid funds with high ongoing fees. Like sales fees, steep expenses are a serious drag on your efforts to compound money over the years. We favor funds with modest minimum initial investments, typically $2,500 or less. And we shy away from unwieldy funds afflicted with asset bloat.
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We also closely examine the track records of portfolio managers -- the longer, the better. Outstanding long-term performance is a given, but we also pay attention to how those results are achieved. Consistency is important, as is the link between returns and risk. Funds that have produced modest returns are perfectly acceptable if they've taken below-average risks. And one subpar year doesn't disqualify a fund from consideration -- no fund excels year after year. Managers who are personally invested in the funds they run get extra credit; if they have their skin in the game, they'll feel the same joy and pain as ordinary shareholders.
We ask portfolio managers directly to describe their strategies, styles and thought processes for buying and selling stocks or bonds. We gravitate toward managers with the discipline to hew to an investment style even if the stock market is temporarily uncooperative.
Listing our favorites is only part of the job; owning a single fund or two, or owning all 25 of them, does not a sound investment plan make. So we provide three portfolios using funds from the Kiplinger 25, each package geared toward investors with a different time horizon and level of risk tolerance (see suggested portfolios).
Large-company stock funds
Of course, shares of large companies have trailed those of small companies for most of the past seven years, and large-company growth stocks have performed particularly poorly. But both Marsico and Gilchrist think the pendulum will swing back to growth this year. They note that even traditional value managers are buying growth stocks because their prices are irresistible. "This is an incredibly attractive asset class," says Gilchrist.