Back to the Story

WE AREN'T EXAGGERATING when we say the Stratton Multi-Cap fund has been around the block a time or two. James Stratton launched this fund in 1972, and since then he has deftly navigated that decade's oil crisis, the 1987 crash, the tech boom and bust, and numerous bull and bear markets in between. According to Lipper, the fund has averaged an annual return of 11.7% over that 36-year period.

Performance track records are one of the most important criteria we look at every week. Usually we settle for analyzing funds based on their trailing three- and five-year stints. But there is a group of funds that can boast of posting returns that go back 10, 20, even 30 years. Indeed, funds from Dodge & Cox, Fidelity, MFS, Pioneer and Putnam date to the Great Depression era. Talk about handling all the market can throw at them.

This week we devoted the SmartMoney.com fund screen to the offerings that make our "since inception" cut. This is one of the hardest lists of the year to make. We started with a universe of 2,181 funds and share classes that have averaged an annual 11% return roughly the historical return of the broad market since they were founded. In addition, the funds had to have performance tracks during the three-, five- and 10-year periods that put them in the top 25% of their Lipper categories. We also wanted to give credit where credit was due, so we looked for funds whose managers had been in place for at least five years. Finally, we included our usual expense criteria. That got us down to 25 equity funds.

The idea behind this screen is to put the spotlight on funds that have proven themselves through thick and thin. An investor has valuable information when he or she can look back and see how a manager handled market calamities. And while that's no guarantee the manager will react the same way in the future, we like to think the pros learn from their mistakes. "You want to be able to look back [at the track record] and understand the guy's thinking and whether he had a good sense of the market," says Shana Orczyk, a research analyst at Peak Financial Management in Waltham, Mass.

We also included three time periods because if we simply looked at returns since inception we would have ultimately wound up rewarding a few newer funds that had managed to post a few good years. That's not our goal here.

although performance has come down about half a percentage point since we performed this screen last summer.

Reader Jim Anderson of Mills River, N.C., emailed us recently asking for a run-down of how the funds from last year's list had held up. We'll take Anderson's suggestion since it's always a good exercise to look in the rear-view mirror. There are some funds that fell off the list. FBR Focus, Heartland Value and T. Rowe Price Equity Income don't make an appearance here due to their recent short-term track records. (We still like them as investments, though.) Excelsior Value & Restructuring also disappeared, but that's because of a name change. It's now called Columbia Value & Restructuring.

Some funds have continued smooth sailing. The 1st Source Monogram Income Equity fund is arguably the best undiscovered fund we have come across in quite some time. To see our take on this fund, a few of manager Ralph Shive's top picks and a video interview click here. Ken Heebner, manager of the CGM family of funds, continues to throw up big numbers, too. Heebner is known for his rapid but disciplined trading style. CGM Realty has an average annual return since inception of 21%. (The fund was launched in 1994.) Its sister fund, CGM Focus, has averaged an annual return since inception of 25%. That fund has been around since 1997.

And then there is Stratton Multi-Cap, a new entry on our list. The fund tends to own companies with strong cash flows and dividend growth rates. James Stratton also likes companies with good future earnings prospects, strong management teams and an industry foothold that is tough for competitors to overcome. The portfolio is concentrated with 40 names, including, according to Morningstar, companies like Ametek, Penn Virginia, EOG Resources, Valero Energy and XTO. It's in the top quintile of its Lipper peer group over the trailing decade. And if that's not enough, its 1.06% expense ratio happens to be one of the cheapest on our list.

The Criteria

We started this week by looking for funds with returns since inception that exceeded 11%, about the historical average return of the broad market. In addition, the funds had to be in the top 25% of their peer group over the trailing three-, five- and 10-year time periods. The fund's manager had to be in place for longer than five years. And the funds had to be open to new money, require a minimum investment under $5,000 and charge an expense ratio less than 1.5%. As usual, we didn't include load funds.

See the Fund Screen Table

Long Haulers
Ticker	Name	Assets (In Millions)	Expense Ratio (%)	Average Annual Return Since Inception (%)	Manager's Tenure
	1st Source Monogram Income Equity	635	1.13	11.8	12
	Amana Growth	738	1.36	11.5	14
	CGM Focus	10326	0.99	25.0	11
	CGM Realty	2387	0.86	21.0	14
	Columbia Value & Restructuring	10324	1.02	16.0	16
	Delafield	592	1.28	12.9	15
	Fidelity Canada	5395	0.96	13.4	6
	Fidelity Nordic	711	1.06	14.7	10
	Gabelli Asset	2660	1.36	13.2	22
	Gabelli Equity Income	1221	1.43	11.2	16
	Gabelli Small Cap Growth	979	1.42	13.9	17
	Hodges	704	1.42	12.2	16
	Loomis Sayles Nid Cap Growth	136	1.25	11.2	9
	Matthews China	1346	1.17	13.7	10
	Royce Heritage	92	1.27	15.1	13
	Royce Low-Priced Stock	3041	1.49	14.2	15
	Royce Micro-Cap	733	1.46	14.5	8
	Russell Real Estate Securities	1885	1.08	12.0	7
	Stratton Multi-Cap	177	1.06	11.7	36
	Stratton Small Cap Value	749	0.87	12.3	8
	T. Rowe Price Health Sciences	2143	0.83	12.7	8
	Value Line Asset Allocation	139	1.10	11.1	15
	Value Line Emerging Opportunities	975	1.12	12.7	15
	Wells Fargo Advantage Discovery	279	1.38	12.5	7
	Westport	106	1.49	12.3	11

Source: Lipper

Note: Data as of July 24, 2008

Since Inception Screen Recipe

• Five Emerging-Markets Funds to Explore

• 7 Funds Worth Their High Minimums

• Funds That Won't Break Your Budget

* The screen only includes equity funds.

Also See: