The Big Screen: Intriguing One- and Two-Star Funds

While a one-star restaurant could give you indigestion and a two-star hotel might put you on a lumpy mattress, it's not necessarily a good idea to write off a fund just because it's saddled with a lowly one- or two-star rating on Morningstar's five-star scale.

Many investors seek out funds with four- and five-star ratings because they seem like a convenient seal of approval that winnows the thousands of funds to relatively few choices that often boast fat returns. But the star rating, in and of itself, isn't necessarily the best guidepost, since funds in hotter areas tend to be favored.

To prove our modest point, this week The Big Screen sifts the hundreds of nonsector U.S. stock funds with a one- or two-star rating for those that beat their average peer since Jan. 1 and over the last three years. To make our list, a fund also had to have below-average expenses and a manager who'd been in place for at least three years. Here are the top 10, ranked by their year-to-date return. ...