Mutual Fund Site

Considering the select group of investment funds that we cover at the Mutual Fund Site, one might think that arriving at a list of the Ten Best Equity Mutual Funds to watch in 2011 would be a simple task. After all, the 50 different mutual funds that we cover and continue to monitor are, by themselves, among the best investment funds on the market today, so how far wrong can we be, even by selecting a random sample?

Arguably, awarding a single Top Mutual Fund Pick for 2011 has proven a much more challenging task. The Franklin Growth fund, while we expect big (and great) things from it in 2011, does not find itself on this list at all. Why would that happen? While we looked more closely at quality of the underlying securities when we chose the Franklin Growth fund, this time around we came up with a less subjective and a more quantitative approach. In some ways, our criteria for our Top 10 for 2011 was much more rigorous; the standards were based purely on objective standards. Let us illustrate:

>> No trailing returns below 5% from 1 year through 5 years. That is to say that our intention was that none of the equity based mutual funds found here would have a trailing return of less than 5% for 1, 3 and 5 years. This in itself is a huge achievement for a lot of investments, never mind those that are considered fundamentally strong like those we cover at the Site. However, it turns out that two of the funds on our list did not have a 5-year trailing return figure and two others’ “true” trailing return for 5-years was 4.92% (rounding up got us to the 5%) and 4.12% respectively.

>> No third-party rating below 4 stars. In other words, the mutual fund’s Morningstar rating has to be 4 stars or above. This was no easy task, but one we felt offset any bias we might have against the “bias” of Morningstar.

>> Each of the six market capitalization and investment style “boxes” had to be represented. That is to say, we could not leave any of the following boxes empty… the full spectrum of market cap and investment styles needed representation.

>> Equities had to comprise of at least 65% of the fund’s portfolio. Those equities could be domestic or foreign. As well, the investment fund could also hold fixed income securities (e.g. a balanced fund) provided that those fixed income securities allowed for a 65% equity weighting. (This excluded the Vanguard Wellesley Fund, which met our 5% returns from year 1 through 5 inclusive).

>> Funds had to have been part of our list of covered funds prior to December 31, 2010.

These 5 criteria have allowed us to pick through some of the best equity based investment funds on the market. While we were not exactly “wowed” by some of the performance, we were proud to see that our methodology of covering funds with solid fundamentals that consist of a strong equity base could indeed produce such high caliber returns from our funds.

So, without further adieu, here is our Top 10 Equity Funds to watch in 2011 (listed in order of their 1-year trailing returns):

T. Rowe Price New Horizons Fund (PRNHX). The T. Rowe Price New Horizons Fund is ranked 4 Stars by Morningstar and has a 1-year return of 34.63%, a 3-year return of 8.99%, and a 5-year return of 5.67%. This Small Cap Growth fund achieved the best 1-year trailing return in our sample here.

Marshall Small Cap Growth Fund (MRSCX). The Marshall Small Cap Growth Fund is another 4 star, small cap growth fund that comes with a great 1-year return of 30.73%. Its 3-year return of 8.39% puts it in line with the T. Rowe Price New Horizons fund, but its five-year return of 8.96% really sets it apart from this group, placing it 3rd for its 5-year performance.

Fidelity Small Cap Discovery Fund (FSCRX). This Fidelity Small Cap Value fund returned 30.42 on a 1-year basis, 16.33% on a 3-year basis and 8.38% on a 5-year basis. Its track record is most impressive among the small cap group. For a 4-star fund, its 3-year trailing return of 16.33% placed it second to none other than the infamous Oceanstone fund. This is one equity fund to watch in 2011.

Phocas Small Cap Value (PHSVX). This small cap value fund, which Morningstar rates as 4 stars, lacked a 5-year trailing return. However, its 1-year return of 29.51% and its 3-year return of 10.36% make it a solid player, one we do not credit enough on our Site.

Oceanstone Fund (OSFDX). The Oceanstone fund is a mid-cap value fund that holds a dear spot in our heard. Its unconventional investment strategy, high turnover and large cash position make its 1-year return of 24.7% and its 3-year return of 65.70% seem utterly impossible. Rated a coveted 5-stars by Morningstar, this small fund (by asset size) is one of the most prolific funds we have ever reviewed.

Matthews Asia Pacific Fund (MPACX). We love this 4-star Asia-Pacific focused equity fund and it does not surprise us that it made our Top 10 list. With its 1-year return of 23.41%, 3-years at 6.5% and 5-years at 7.56%, this is one equity fund with a lot of power behind its motor. Tough achievement given the economic climate in its focus area…

Ivy Small Cap Fund (IYSAX). The Ivy Small Cap fund holds a spot that is dear in our heart. As our Top Mutual Fund Pick for 2010, this small cap value fund shows a 1-year return of 22.79%, a 3-year return of 10.41% and a 5-year return of 5.31%. No surprise here given its 4-star rating.

Fairholme Fund (FAIRX). This 5-star rated, large cap value fund is managed by one of the best equity managers around. With some income in its portfolio to help keep returns high, the fund was still able to record a 1-year trailing return of 18.65%, a 3-year return of 8.21% and a 5-year trailing return of 9.46%. With some of the focus on fixed income in 2011, it makes sense for us to have this equity fund on our Watch list.

Primecap Odyssey Growth Fund (POGRX). Another funds we do not credit nearly enough, the 4-star Primcecap Odyssey Growth fund has provided great returns. It’s 1-year return of 17.6% is impressive, it’s 3-year return of 5.19% even more so, and its 5-year return of 4.9% is enough to place it on this short list. As a Mid-Cap Growth fund, this equity fund is well worth studying in 2011 given how tough it would have been to squeeze out returns in 2010.

Buffalo Small Cap Fund (BUFSX). This 4-star, Small Cap Growth fund is part of an elite family of funds that provides consistent returns and strong management. This comes through in its returns, even though  this fund’s 1-year return was substandard (in our opinion). However, even with its 1-year return of 14.96%, this was a good investment in 2010. Add the 3-year trailing return of 6.62% and its 5-year trailing return of 4.21% and it is easy to see what this investment fund made our list, even if its 5-year trailing return left us scratching our heads.

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