A Banner Year for the Kip 25

We hope you stayed the course with the recommendations in the Kiplinger 25, the list of our favorite no-load mutual funds. In the six months since we published the latest version, the stock market has roared back. Nearly all of our picks among stock, bond and commodity funds have more than matched their respective indexes in 2009, many of them by handsome margins. (The one-year results for all our stock funds remain negative, but the numbers should improve dramatically next month, once the awful performance from mid September through early October 2008 drops out of the calculations.)

Before analyzing the funds in more detail, our first order of business is to replace Vanguard Primecap Core, which has closed to new investors. The good news is that we've found a worthy replacement: Primecap Odyssey Growth, run by the same team that runs Primecap Core.

The funds are quite similar. The managers look for growing companies that are selling at relatively cheap prices, then hold them for long periods. Among fund families that focus on growth stocks, it doesn't get much better than Primecap, which has demonstrated consistency and an unusual ability to achieve above-average returns with average volatility. Although Odyssey Growth's fees are slightly higher than the Vanguard fund's, they're still, at 0.73%, well below average.

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We have a weakness for fund managers who stubbornly stick to their knitting even when impatient investors are hurling bricks at them (and at us for recommending their funds). Two disciplined managers in particular have really turned it around this year.

Longleaf Partners, managed by Mason Hawkins and Staley Cates, and Dodge & Cox International Stock have both broken out of slumps with a volley of winners. Year-to-date through September 4, Longleaf was the top domestic performer among the Kiplinger 25, with a return of 36%, compared with 15% for Standard & Poor's 500-stock index. D&C International Stock gained 36%, 11 percentage points ahead of its bogey (be aware that this fund has 22% of its assets in emerging-markets stocks).

This year's biggest disappointment is the streaky CGM Focus, which has been essentially flat. But let's give manager Ken Heebner his due: Over the past ten years, Focus has compounded at 18% annualized, an astounding 19 points per year better than the S&P 500. The unapologetic Heebner declined an interview request, but he dropped us a line to say that he's fairly upbeat about the economy over the coming year and has stuffed his portfolio with big banks and economically cyclical, industrial stocks. (As of June 30, Ford Motor was his largest position.)

In the bond sphere, we can't complain about Pimco's peerless Bill Gross, who manages Harbor Bond. Mere mortals find it tough to beat a bond index, but Gross makes it look easy. Harbor's 11% return so far this year is an astounding six points ahead of its benchmark. Loomis Sayles Bond, managed by veterans Dan Fuss and Kathleen Gaffney, has come up roses in 2009 after a horrid effort last year. But remember that this fund is riskier than Harbor.