All five of the Mutual Series funds with 10-year records have outperformed their benchmarks during that period, according to Morningstar. Among the stars is Mutual Quest ( TEQIX), which has returned 7.2% annually during the past 10 years, outdoing 88% of its world stock competitors.

The fund has done particularly well in downturns. During the turmoil of 2008, Mutual Quest outdid its benchmark by 17 percentage points and surpassed 99% of competitors. Another strong performer is Mutual European ( TEMIX), which returned 8.4% annually during the past 10 years, outdoing 78% of competitors. In 2008, the fund topped 98% of competitors.

Mutual Series managers look for different kinds of undervalued stocks. Besides buying troubled companies with valuable assets, the managers sometimes take steady companies that have fallen out of favor and sell for 30% or more below their fair prices. These days many holdings are solid businesses.

The managers say that in recent years, investors have been flocking to low-quality small stocks. That has left many well-known blue chips trading at bargain levels. Mutual Shares and PIMCO Equity Series both own Microsoft ( MSFT) and Royal Dutch Shell ( RDS.A), rich giants with steady cash flows and low price-earnings ratios.

All the funds run by present and former Mutual Series managers have big stakes in tobacco companies. Because of the legal problems, the stocks sell for low prices. But the businesses have rich cash flows and growing dividends. Many of the companies have been able to push through big price increases in recent years. Mutual Quest and Wintergreen both hold British American Tobacco ( BTI) and Philip Morris International ( PM).

A standout fund with a big tobacco stake is Mutual Global Discovery ( TEDIX), which was run by the new PIMCO managers Gudefin and Lahr. The fund is now overseen by Peter Langerman, who also manages Mutual Shares. Global Discovery has returned 8.4% annually during the past 10 years, outdoing 94% of competitors. The fund topped 98% of peers in 2008.

If you are looking for a world stock fund, should you buy Mutual Global Discovery or PIMCO Equity Series? That is a tough question. Both funds are run by veteran managers and hold similar stocks, including Imperial Tobacco ( ITYBY) and pharmacy company CVS Caremark ( CVS). Chances are both funds will continue in the tradition of Mutual Series, delivering solid returns while protecting assets in downturns.

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Stan Luxenberg is a freelance writer specializing in mutual funds and investing. He was executive editor of Individual Investor magazine.

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