If you don't have the time to learn how to invest, there are two reasonable paths to managing your money. One path is to invest in index funds. The other is to invest in proven managers like Warren Buffett. There are plenty of people who write about indexing. But I'm going to tell you what I've learned about the other path during the 18 years I've spent looking for Marketocracy's managers. I've applied those lessons to put together a list of the greatest mutual fund managers for Forbes.
A 10 Year Track Record
Almost everyone agrees that a one year track record is not long enough to say anything about a manager's skill. Reasonable people can disagree about whether three or five years is long enough. Most would agree that a 10 year track record is long enough to say whether a manager has exhibited investment skill. Lets start there.
Morningstar's premium fund screener says that out of 26,040 mutual funds there are only 4,675 whose managers have a tenure of 10 years or more. That means 21,365 (82%) mutual funds have managers whose time in the drivers seat is too short to know if they are skilled. For all of these funds, I think it would be better to invest in an index fund tied to the same benchmark and save the management fees. If you are going to pay a management fee, you want to be sure to get a manager who is already proven, not someone who is basically learning on the job with your money. Still, 4,675 managers are a lot to sift through, lets look at their returns.
The S&P 500, which is by far the most widely used benchmark for index funds, returned 9.39% per year including dividends for the past 10 years. This is going to set one of the hurdle rates I will use to evaluate managers. After all, if a manager didn't beat the S&P 500, you would have been better off in an index fund.
The second hurdle is that the fund must outperform its category benchmark. When a fund does not beat its category benchmark it means there are funds with similar investments that did much better.
Whenever I update this analysis I find that only about 200 mutual fund managers clear both hurdles over 10 years. If you are going to pay for a good manager, the managers of these funds are worth it. Click on the button below to follow the greatest mutual fund managers. Click here to download the most recent spreadsheet listing all the funds that passed muster.