10 Top-Performing Mutual Funds of 2010

BOSTON (TheStreet) -- Mutual-fund managers are earning their fees this year by beating the benchmark Standard & Poor's 500 Index as much as five-fold.

The top performer among diversified mutual funds that primarily buy large U.S. companies is Morgan Stanley Focus Growth(AMOBX), with a 25% return this year through Nov. 29. It also was the best in its large-growth fund category in 2009, with a 72% gain. The S&P 500 has risen 4.8% this year.

Fidelity Investments' mutual funds took up four spaces in the top 10, including the $35 billion Fidelity Growth Company Fund(FDGRX), and eight funds in the top 25, including the flagship $71 billion Contrafund(FCNTX).

Mutual-fund managers have been helped by lower volatility after the wild ride of the 2008 crash and the 2009 rebound. Russel Kinnel, director of mutual-fund analysis at Morningstar, said this year's results are more in line with historical averages, with the top funds showing low double-digit returns, besting the broader stock market's probable 8% to 10% return for all of this year.

The best-performing industries have been industrial materials and consumer discretionary, a shift from the prior two years when financial services and health care were the leaders. Those two are now out of favor, hampering some managers.

Looking to 2011, mutual funds that invest in "high-quality" U.S. growth stocks may be among the best bets for investors, while fixed-income funds probably should be avoided, Kinnel said. Investors have driven bonds to record-low yields, causing concern the bottom of the fixed-income market may fall out as investors pour into stocks because of a strengthening economy.

"I worry when I see so much (money) going into bond funds when yields are so low," he said. "People ignore the dividend yield or the earnings yield that you see in stocks."

This article's rankings are based on data provided by Morningstar and includes mutual funds of $1 billion or more that are the best performers in the large-capitalization growth, value or blend (growth and value) categories, with less than 30% of assets in small- or mid-cap stocks. Industry- and country-specific funds also were excluded.

In inverse order, here are the top-10 performing funds, their key holdings and their strategy: