Investing to create wealth is more about maximizing your returns after fees, than minimizing your expenses. The top 3 mutual funds in my just-completed analysis are not the cheapest. Nevertheless, these funds beat their benchmarks by the widest margins for the last 10 years and are still managed by the people responsible for the fund’s track record.
The Top 3 Mutual Funds
The top 3 mutual funds that met my criteria are: Metropolitan West AlphaTrak 500 (MWATX), Matthew 25 Fund (MXXVX), and Berkshire Focus (BFOCX). Let’s take a close look at each of them.
Metropolitan West AlphaTrak 500 (MWATX)
Stephen M. Kane and Tad Rivelle have managed this fund since June 1998. The fund’s objective is to exceed the total return of the S&P 500. Over the past 10 years, it has succeeded by an average 4.48% a year which in my view is a big deal.
If you invested $10,000 in the S&P 500 10 years ago, it would be worth $41,165. Invested in MWATX, your account would be worth $60,286 — about 46% more after all fees! Is that difference worth the fees? You bet.
With an expense ratio of 0.91%, this fund will never compete with S&P 500 index funds on costs. Maybe that’s why Morningstar has not interviewed the managers in 10 years even though their performance earns them a 5-star rating.
Matthew 25 Fund (MXXVX)
Mark Mulholland started this large-cap blend fund in 1995 and has been the manager the whole way through beating the S&P 500 by 3.67% a year (after all fees) for the past decade.
The fund has an expense ratio of 1.10% which is quite a bit higher than many S&P 500 index funds. The Vanguard Index 500 fund (VFINX), for example, charges just 0.14% a year so MXXVX is nearly 8 times the cost. Was it worth it? An investment of $10,000 in MXXVX 10 years ago would be worth $56,328 after fees — $15,163 more than if the same amount had been invested in an S&P 500 index fund charging zero fees.
In spite of this performance, the fund gets only a 4-star rating from Morningstar, and they last mentioned the fund in an article dated March 12, 2014.
Berkshire Focus (BFOCX)
Malcolm R. Fobes has managed this tech fund since he started it in July 1997. For the past 10 years, he has outperformed the tech benchmark by an average 4.71% per year even after deducting annual expenses of 1.97%. I’ll spare you the details, and cut to the conclusion that 1.97% annual fee has been well worth it for investors who got a much higher return than the benchmark after all fees.
Again, in spite of the fund’s performance, Morningstar gives it only 4 stars, and it does not look like they have ever written about the fund or interviewed the manager.
My Take: While low fees are always a positive, it does not follow that the funds with the lowest fees are the best.
While these three funds are not the cheapest, they have delivered benchmark beating returns after all fees for a long time.
There is no guarantee that their outperformance will continue just as there is no guarantee that the market will go up. But the managers who piloted these funds through the last 10 years with impressive results are still at the helm. That’s what makes them a better choice than the 97% of U.S. equity mutual funds that did not make the cut.
If you have to choose between a manager who is not on the list, and an index fund, choose the index fund.
Click here to download the most recent spreadsheet listing all the funds that made the cut.
To see previous articles in this series, click here.