Across My Desk: The Hottest-selling Mutual Funds

Morningstar came out with its list of the 10 hottest-selling mutual funds in 2006 earlier this month and guess what? They're the same funds they consider keepers.

Here's what, Russ Kunnel, Morningstar's director of mutual fund research. He is also the editor of Morningstar FundInvestor, says:

"As long as mutual funds have been around, the biggest mistake fund investors have made is chasing performance at the expense of fundamental factors such as management, strategy, and expenses.

The basic flaw in doing that is that you're buying yesterday's winners rather than focusing on the things that actually help you pick tomorrow's winners. Check out the record of hot-selling Internet and tech funds from 1999 to see where that path leads.

For 2006, though, I was pleased to see that the trendiest stuff didn't make the list. No China funds, no Russia funds, not even a real-estate fund. Rather, the top-selling funds were broadly diversified, well-managed, and low in cost. True, there was an emphasis on funds with strong recent returns and many of the funds suffer from asset bloat, but those are minor concerns compared with buying super-trendy super-costly niche funds like the top-performing China funds...

I'll cut to the chase first and say that all 10 are worth holding on to if you own them. Most are so large that they ought to close, but they're still solid funds."

The 10 funds include:

• American Funds Growth Fund of America (AGTHX)
• American Funds EuroPacific Growth (AEPGX)
• Dodge & Cox International Stock (DODFX)
• Vanguard Total Stock Market Index (VTSMX)
• Fidelity Diversified International (FDIVX)
• PIMCO Total Return (PTTRX)
• Harbor Bond (HABDX)
• American Funds Fundamental Investors (ANCFX)
• Davis New York Venture (NYVTX)
• Selected American (SLADX)