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Steady Mutual Funds That Beat the S&P 500


The MFS fund relies on two sets of analysts. A quantitative team uses computer models to search for stocks that show promising signs, such as strengthening prices and improving earnings. A second team performs old-fashioned fundamental analysis, looking for businesses that are growing and have catalysts to continue improving. The fund doesn't buy anything unless both teams agree on the purchase.

MFS portfolio manager Matt Krummell says the two groups of analysts complement each other because they often excel at different times. The quant analysts tend to do best during steady rallies. But they can miss the target when the market shifts direction and the recent past does not provide a reliable guide for future performance. While the fundamental team does better at inflection points, it can trail the quants in strong bull markets.

"By blending the two approaches, you can get steadier results across long time periods," Krummell says.

One MFS holding is FleetCor Technologies (FLT), which provides prepaid cards that can be used by truck drivers to purchase fuel and lodging. "They have a lot of international expansion opportunities," Krummell says.

Another holding is Grand Canyon Education (LOPE), which offers college degrees. By charging lower fees and offering appealing courses, the company is recruiting a growing number of students, Krummell says.

First Investors Growth & Income stays broadly diversified. The fund has 135 holdings and keeps less than 2% of assets in each stock. Portfolio manager Edwin Miska favors steady growers that sell at modest prices. The price-earnings ratio of the fund tends to be a bit below the figure for the S&P 500. During the past 10 years, the fund returned 7.5% annually.

Many of the biggest holdings are rock-solid blue chips. Miska is partial to such giant technology companies as Microsoft (MSFT) and International Business Machines (IBM). "They have good balance sheets and reasonable earnings growth," he says.

The aim is to buy stocks that can grow for years. The fund turns over only 20% of its portfolio annually, and some stocks have been in the fund for more than 10 years.

At the time of publication, the author had no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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