Stable management key in top funds

Patience in the midst of volatility is a challenge. Too often mutual fund shareholders become nervous and make ill-advised changes because they can't accept temporary declines.

Investors who generally do best stick with the basic program through thick and thin.

The top diversified stock funds in average annual return over the past 10 years rewarded hardy souls who left money where it was, no matter what. Viewed in hindsight, a brilliant non-move.

"Hitting singles and doubles is fun and hitting home runs even better," said Tom Roseen, senior research analyst with Lipper Inc. in Denver. "But if you find a fund that hits triples all the time, you'll always be in scoring position."

Longevity of management is key to funds that are successful and consistent long term. The top six stock funds in the past 10-year period kept the same lead managers running the show throughout that period, Roseen said. Even the two newest managers among the 10 best-performing funds have been in their positions five years.

Steady strategy instills understanding, trust and patience in shareholders. Of course, investment climate makes a difference, too.

"The list of top 10-year performers has mid- and small-cap funds on it, but no large caps," Roseen said. "We've come off a period when small- and mid-cap stocks have been very popular, while large cap has been a pariah since the 2000-2002 market decline."

The consistent characteristic of the top fund of the past 10 years is the fearless confidence of manager Kenneth Heebner, in charge since its 1997 inception. His CGM Focus Fund in Boston has a 10-year annualized return of 25 percent.

Heebner makes big bets, often owns less than 25 stock names and shifts among market caps. His short position (a bet that a stock will decline) in subprime lender Countrywide Financial (CFC) and his shares of Chinese oil firm CNOOC (CEO) helped produce an 80 percent gain last year.

"I concentrate," Heebner said. "When I run this fund I'm looking at opportunities and then concentrating the fund where those opportunities are."

Focusing on a small number of stocks can be risky because of potential damage if several holdings tank. He also trades a lot, generating significant capital gains tax liability.

Heebner insists that he is fully aware of what could go wrong, "and I act very quickly on problems." He is constantly researching, studying global trends and trying to learn from mistakes.