Fund Casts Wide Net to Catch Best Stocks

Meritocracy can be worth a lot of money.

The MOFQXMarketocracy Masters 100 fund, run by Ken Kam, is up 11.4% so far this year, 60 basis points better than the S&P 500. Kam, however, can't take sole credit for the fund's outperformance. The fund's distinctive model offers him a lot of help in picking winners.

Kam recruited over 55,000 people to manage over 65,000 model portfolios at his Web site marketocracy.com. The fund managers in turn compete for the highest returns. All the while, Kam tracks, analyzes and evaluates their virtual trading activity in order to find the best performing stocks, which he then cherry picks for the mutual fund. According to Kam, the top managers are rewarded with research contracts based on the fund's assets under management, currently $41 million.

"It's a unique model that allows us to identify the best managers in a quantifiable manner," says Kam, in a recent Street.com TV interview. "Then we pool the best ideas into a single fund. I guess it's best described as a meritocracy."

Since the fund's stock selections are culled from its numerous online managers instead of a benchmark or investing style (like growth or value), Kam refers to it as a "go anywhere fund." As a result, the fund's character tends to migrate. For instance, the fund's current make-up is heavy on mid-cap growth stocks, specifically energy, biotech and tech names, as those sectors have rallied since the start of the year. Last year, the fund relied mostly on small-cap names.