BOSTON ( TheStreet) -- Ten mutual funds with reputations for making concentrated bets on outlier stocks are buying financial companies, as beaten down a sector as you can find.
The results of such bets can, of course, be disappointing, as they have for the most part this year, or they could represent wily fund managers laying the groundwork for big gains when the market rebounds.
Morningstar analysts selected 10 of their favorite "against the grain" funds known for their intrepid picks and combined their top holdings into one theoretical portfolio to see what their managers are up to now, with some surprising results.
For example, only three of the portfolio's top 25 holdings are among the S&P 500 Index's 25 largest stocks, despite the fact that all of the funds are large-caps. Those three are about as conservative as you can get: Warren Buffett's conglomerate Berkshire Hathaway (BRK.B - Get Report), software giant Microsoft (MSFT - Get Report), and consumer-goods company Procter & Gamble (PG).But notable in their absence are the huge growth-stock favorites that are among the most ubiquitous in most mutual funds: iPad and iPhone maker Apple (AAPL - Get Report), Internet search engine Google (GOOG - Get Report), and oil firms Exxon Mobil (XOM - Get Report) and Chevron (CVX - Get Report). Morningstar chose the 10 funds based on their ability to add value over the long haul, "but the funds' managers typically haven't done that by simply making outsized bets on the largest constituents of their benchmarks. They've often gone against the grain, buying unpopular stocks and those that take up only a small slice of their funds' benchmark." The funds are Longleaf Partners (LLPFX), Oakmark Select (OAKLX), Brown Capital Management Small Cap (BCSIX), Clipper (CFIMX), Fairholme (FAIRX), FMI Large Cap (FMIHX), Jensen Quality Growth (JENSX), Mairs & Power Growth (MPGFX), Matrix Advisors Value (MAVFX), Sequoia (SEQUX) and Brown Capital Management Small Cap (BCSIX). The funds' individual results are varied, although they all have excellent long-term records. For example, Clipper is up 1.6% this year, but has a three-year average annual return of 15%. Longleaf Partners is down 4.7% this year, but up an average of 20% per year over the past three years. Fairholme, managed by Bruce Berkowitz, is down 27% this year, but has a 10-year average annual return of 7.8%. The S&P 500 is little changed this year, and has risen 3.8% over the past 12 months and an annual average 13% over the three years. The funds' combined top picks are detailed on the following page: