Why publish a list of the best fund families? Because quality counts in investing just as it does in every other facet of life. We published a similar list, with many of the same names, three years ago. Not one of them got in trouble when fund abuses later came to light, and we weren't surprised. You could also describe these families as most trusted. They treat you as partners as well as clients. Their costs are reasonable. Their long-term results are above average. They're willing to close funds to new investors lest they grow too big.
We divide our dandy dozen into two groups: department stores, where you can find all you need under one roof, and boutiques, which offer limited selections. For each family, we also name the best funds open to new customers.
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In the 1980s, Fidelity stock funds sizzled. But as assets poured in, many lost their luster. Magellan, once the poster child for Fidelity's success, is emblematic of the firm's struggles, and Will Danoff's Contrafund is now Fidelity's biggest stock fund. But the Boston behemoth is fighting back, in part by hiring experienced stock analysts for the first time. It has also cut fees on its index funds. Best picks: International Discovery, Overseas, Value, all bond and index funds.
Baltimore-based T. Rowe Price keeps it simple. Most of its stock funds invest in growing companies selling at reasonable prices -- a common-sense strategy. Although international funds are in a mild slump, other T. Rowe funds are above average or standouts. Best picks: Emerging Markets, Equity Income, Growth Stock, Health Sciences, New Horizons, Real Estate, Spectrum Growth, all Retirement funds.
Rock-bottom costs are the gospel at Vanguard, a Valley Forge, Pa., firm owned by fund shareholders. Low costs help foster superior bond, money-market and index funds. Vanguard contracts out most of its actively managed funds, usually to top investors. Best picks: Growth & Income, Primecap Core, Selected Value, Wellington, Windsor, Windsor II, all bond and index funds.
Best of the boutiques
When Andrew Ziegler started Artisan Partners in 1995, he sought excellence. He hired veteran managers, made them partners in the business and allowed them to work where they wanted -- so Artisan has offices in three cities. Only three of eight funds are open to new investors. Best picks: International Value, Opportunistic Value.
John Montgomery, the brains behind Houston-based Bridgeway, is secretive about the computer models he uses to pick stocks. That makes the funds difficult to evaluate, except on the basis of performance. And in that area they have excelled since Bridgeway launched its funds in 1994. Most of the funds, however, are volatile. One plus: Management fees rise and fall with results, a rarity in the fund industry. Best picks: Aggressive Investors 2, Small-Cap Growth, Ultra Small Company Market.
John Kornitzer's firm has run most of the Buffalo funds, arguably the least familiar group on our list, for more than a dozen years. Eight managers and nine analysts invest $3 billion for the firm, based near Kansas City. They look for investment themes, then spend most of their time finding growing companies selling at reasonable prices. Best picks: Mid Cap, Science & Technology, Small Cap.
Few firms have done better than 76-year-old Dodge & Cox in picking undervalued large-company stocks. After exhaustive research, a committee makes the final decisions on all purchases and sales. Costs are ultra-low, and the firm closes funds before they grow too big (two of its four offerings are shut). Best picks: Income, International Stock.
Outsourcing fund management has paid off for Harbor and its clients. The firm retains managers with top-notch, long-term records. (For instance, Pimco runs Harbor's first-class bond funds.) Although fees on some funds have risen, they're still low. Best picks: Bond, Capital Appreciation, International, Real Return.
Until July, all three Longleaf Partners funds had been shut. That's when Memphis-based Longleaf reopened International to new clients. Longleaf really does treat investors as partners, and its patient, often contrarian approach to value investing is a proven success. Best pick: International.
One day Marsico may find that it has grown too big for its britches, but that day hasn't arrived yet. It manages $70 billion in assets, but performance remains stellar. Tom Marsico has built a team that identifies promising themes, then finds growing companies that can capitalize on them. Best picks: 21st Century, Focus, Growth, International Opportunities.
Each Masters' Select fund is run by outside managers from a variety of investment firms. Each manager must focus on his favorite stocks -- a strategy that impresario Ken Gregory says leads to better results. Among the luminaries in Gregory's stable are Longleaf's Mason Hawkins, Legg Mason's Bill Miller and Selected American's Chris Davis. Best picks: Equity, the new Focused Opportunities, Smaller Companies, Value.
The hallmarks of Chicago-based Oakmark are teamwork, intensive research and dogged conviction that borders at times on stubbornness. Bill Nygren, who runs Oakmark and Oakmark Select, is in a three-year slump because he's sticking to his bet that ailing blue chips will rebound. Best picks: Equity & Income, Global, Oakmark, International, Select.