How the Best-Performing Mutual Funds Deliver Consistent Market-Beating Returns

The best-performing mutual funds don’t regularly beat their market benchmarks by getting lucky or recklessly swinging for the fences.

Delivering excellent returns is all about consistency. It’s about developing a profitable stock-picking blueprint that is repeatable. It’s about having strong conviction in what you own and letting winners ride. It’s about sticking to an investment process.

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Those are the winning traits of portfolio managers whose funds are winners of IBD’s 2026 Best Mutual Funds Awards. Our list of best-performing mutual funds, which includes winners in 11 investment categories, highlights the consistent moneymakers that have posted higher returns than their market benchmarks in the past one-, three-, five- and 10-year periods.

If you’re looking to refresh your portfolio or want help finding funds to buy or sell, reviewing IBD’s 11th annual list of top-performing funds is a good place to start.

Read Our Full 2026 Special Report On The Best Mutual Funds

Best-Performing Mutual Funds: 536 Winners

Our 2026 Best Mutual Funds Awards list includes 536 funds (down from 946 last year) that made the cut. That’s out of 3,751 funds that are at least 10 years old.

U.S. taxable bond funds had the most winners (287 funds), thanks to three quarter-point Federal Reserve interest rate cuts in 2025. Fed easing boosted overall bond prices and pushed down the yield on the 10-year Treasury by more than 40 basis points to 4.17%.

International stock funds had the second-most award winners (89 of 650 funds). Foreign stock funds are benchmarked against the MSCI EAFE index. Sixty-three international bond funds made our list.

Only 36, or 3%, of 1,264 U.S. diversified stock funds made our list, beating the S&P 500’s 17.9% total return last year and in each of the three longer periods in our analysis. Large-cap funds had 35 award winners; all but 13 of them were growth funds.

Only one small-cap fund made the list. For the third straight year, no value funds qualified. And not a single midcap fund made the list.

Best Mutual Funds: Are Value Funds Critical For Diversification?

Fidelity Investments’ Funds Stand Out For Consistent Success

Fidelity Investments topped IBD’s 2026 best-performing mutual funds list for a second straight year. The fund company had 14 of the 36 award-winning funds in the U.S. diversified equity funds category. Fidelity also had 18 bond funds make the list. Read more in our feature on Fidelity’s winning funds, Fidelity Gets Kudos For Stock Funds, But Its Bond Funds Shine.

Best Mutual Funds Profit From Tech Giants

U.S. stock funds underperformed the broad market for a second straight year in 2025 due to narrow market leadership. The Magnificent Seven megacaps (Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA)) totaled 35% of the S&P 500’s market value at the end of 2025 and accounted for 42% of the S&P 500’s total return, S&P Dow Jones Indexes says.

Wall Street’s bigger is better mantra made it tough for funds that invest in value stocks and small caps to top the S&P 500, the benchmark IBD uses for U.S. equity funds.

We caught up with five fund managers who made the 2026 list of the best-performing mutual funds to learn their secrets to success.

How A Top Megacap Stock Fund Profits By Taking Non-Consensus View

Matt Fruhan, manager of Fidelity Mega Cap Stock (FGRTX), invests in the largest 200 stocks in the S&P 500. And while these corporate giants are analyzed to death by Wall Street, Fruhan gains a performance edge by leveraging Fidelity’s army of global analysts and punching holes in the consensus opinion of a stock. Fruhan sees opportunity where the rest of the investing herd sees limited upside.

(Fidelity)

“We look three to five years out, and spend a lot of time drilling into why we think a company’s earnings might deviate from the consensus and what the risk to our investment thesis is,” said Fruhan, who also manages IBD best-performing mutual funds winner Fidelity Large Cap Stock (FLCSX).

If Fruhan’s profit projections are higher than the street’s,

and his valuation framework is compelling, he will buy shares of megacap companies. He then holds them until the valuation resets higher.

Fruhan’s investment math is simple. A stock’s return is earnings growth plus the dividend yield you get and the rise in the price-to-earnings multiple.

“The P-E will change over time,” said Fruhan. “That’s part of the calculus. The key is really drilling down into what longer-term earnings and yield power could be.”

In recent years, Fruhan’s process has helped him uncover winning stocks he dubs “self-help stories.” These are companies with self-inflicted wounds that knocked their shares down, but then got the business back on track, often with the help of new management.

“We look closely at the management team’s strategy and try to understand if there’s been a structural or secular change in the end market, why these companies have underperformed, and what the earnings power will be on the other side,” said Fruhan.

Best Stocks Are Worth Waiting For

If Fruhan’s view on a stock suggests there’s enough upside to make it worth waiting for, he’ll build a position or add to his holdings.

Examples include top 10 holdings like GE Aerospace (GE), GE Vernova (GEV) and Boeing (BA). GE Vernova, once a struggling part of the GE conglomerate, now benefits from surging demand for power. The company is classified as an industrial company, but the maker of gas turbines that power data centers has become more of an AI trade. GE Aerospace spun off its energy and health care divisions and is now a pure-play aviation company profiting from new equipment and servicing older aircraft. Boeing has overcome its safety issues and in 2025 delivered the most aircraft since 2018.

“The market is very focused on the short-term,” said Fruhan. “We try to take advantage of that. If the market gives me an opportunity to buy what I think is an underappreciated earnings stream at a good value, I will buy the stock.”

How A Top Small-Cap Growth Fund Beats The Market Buying ‘Hidden Compounders’

John Barr, of Needham Aggressive Growth (NEAGX), stands alone as his fund is the only small-cap stock fund to make IBD’s 2026 list of best-performing mutual funds.

His secret sauce to picking winning small stocks? Identify “hidden compounders” that fly under the radar, and then patiently wait until they get discovered.

Patience is key to Barr’s strategy. His holding period for stocks he buys is about 10 years. Hidden compounders can often take 18 to 24 months or longer before the stock price takes off.

What does Barr look for in a hidden compounder? Four things, he says.

First, the company must be investing in something new — a new product or service — that has yet to show financial results and that other investors don’t understand. The company must also have an established business with strong cash flow to help fund the new business and protect downside risk.

Number two, the company must have the potential to grow into a much larger company. How big? “Five to 10 times its current size,” said Barr. Barr isn’t looking for stocks that go up 20% or 50%. He’s looking for doubles or triples or even 10 baggers. “The key for me is to let your winners run,” said Barr.

Number three is great management. Barr prefers managers who are company founders, family members or ones with long tenure.

Finally, Barr likes to buy stocks that have a margin of safety built in. “It can come from the value of the established business, a strong balance sheet, or in many other ways,” said Barr.

Best-Performing Mutual Funds Can Start Small

Barr starts small, building positions in hidden compounders over time. About half make it to the “transition stage” when business metrics start to garner investor attention. The ultimate goal is for these hidden gems to grow up to become quality compounders, or stocks that appreciate year after year thanks to strong revenue growth, high margins, and other hard-to-ignore profit metrics.

“If a company makes it through to the quality stage, then it’s live nirvana,” said Barr. “We capture returns in all three stages.”

One of Barr’s biggest long-term winners is Nova Ltd. (NVMI), a maker of equipment used in advanced semiconductor manufacturing. He bought the stock in 2009 at $4 a share when it had a market cap of $60 million. The stock now trades at $429 and is valued at $14.25 billion.

A big winner in 2025 was ThredUp (TDUP), which sells lightly used women’s clothing. The business entered the transition stage last year. It started 2025 trading at about $1.50 per share and ended the year at $6.39, posting a 326% return despite pulling back from its August 2025 record high of $12.28.

When Barr first bought the shares in September 2021, ThredUp was burning through cash as it built out its distribution centers. But he bought shares anyhow. The turning point for the stock came in 2022 after ThredUp’s chief financial officer said the company would not burn through all its cash.

“I believed he had a line in the sand, and they put a business plan together to help them keep more cash and grow faster.”

Best-Performing Mutual Funds Focus

Another stock that has boosted the fund’s performance is nLight (LASR). The company makes lasers that can be used to shoot things down. Barr liked the story and bought shares in 2022. At the time, there was little reporting on the military use of lasers to shoot down drones.

“In 2024, we started to hear more about laser use against drones,” said Barr. This year, nLight’s lasers, which are cost-effective for military use, were used to shoot down a drone first believed to be flown by a drug cartel, but what later turned out to be a child’s party balloon.

“It was the first use of the lasers, and it’s great to see that this is starting to happen,” said Barr. “Because if you’re attacked by a swarm of drones, you can’t use $100,000 missiles to shoot them down.”

How A Top Global Equity Fund  Finds Winning Stocks

Mark Yockey, manager of Artisan Global Equity Fund, has a message for U.S.-centric investors: “There are world-class companies all over the globe, and many trade at more attractive valuations than their U.S. counterparts.”

Sticking to a time-tested investment process is key to Yockey’s success. Since the fund’s launch in 1996, “We’ve applied the same repeatable process,” said Yockey.

Yockey’s winning template? Identify long-term investment themes. Find the companies whose profits will grow because of those themes. And be disciplined on valuation.

The best stocks, Yockey says, are companies that do something unique and have a real competitive advantage and pricing power.

“We like monopolies and oligopolies,” said Yockey. “We prefer less competition, not more.”

Companies aligned with long-term trends are the real moneymakers.

“Secular change is very powerful,” said Yockey. "If a company is aligned with a durable theme, it benefits from a tailwind that can last for years.

Focusing On Themes

Currently, Artisan Global Equity is focused on a handful of themes: financials, electrification, aerospace and defense.

In financials, Yockey likes European banks like Switzerland-based UBS (UBS) and France’s BNP Paribas (BNPQY). These banks no longer are being forced by regulators to hold excess capital as they were after the 2008-09 financial crisis. “Many overseas banks are growing in new areas like wealth management and insurance, while increasing dividends and buying back stock,” said Yockey. “Despite these shifts, most investors have ignored European banks for years.”

Countries outside the U.S. are upgrading their aging electric grids to meet exploding demand from data centers, electric vehicles, robotics, and heating and cooling systems, says Yockey. “We expect global electricity output to nearly double over the next 20 years,” said Yockey.

Yockey likes utilities such as U.K.-based National Grid (NGG), which also operates in New York, and Germany’s RWE. He’s also bullish on European grid specialist Spie SA and South Korea’s LS Electric.

He’s bullish on defense companies in Europe, too. The reason: NATO countries are substantially upping their defense spending. The fund owns U.K.-based Babcock, which makes naval warships and armored vehicles, and South Korea’s Hanwha, maker of precision artillery and air defense systems.

How A Top Mutual Fund Profits On Change

Change is good, says Ankur Crawford, co-manager of Alger Focus Equity (ALGRX) and Alger Capital Appreciation (ACAAX), two funds that made IBD’s 2026 list of best-performing mutual funds.

“When there’s change, there is unrecognized opportunity for growth,” said Crawford. “And the market often underestimates the magnitude of change.”

Crawford and co-manager Patrick Kelly try to capitalize on dynamic change. Their investment approach focuses on two types of change. The first is high unit volume growth, a sign that a company’s new product or business is gaining momentum and taking market share. The second is what Ankur dubs life-cycle change. “This is when a company kind of reinvents itself,” said Crawford.

Kelly says they invest in the companies that are innovating and benefiting from the changing dynamics within the economy. AI is a great example. The co-managers rely on intensive research to figure out who will be the winners and who will be the losers.

Investing In The Picks And Shovels of AI

Knowing what types of companies will be hurt by innovation and which ones will benefit is key. A few years back, for example, Alger funds saw the risk that software companies are now facing as AI puts some business models on the brink of obsolescence.

Research is what is steering Kelly toward AI infrastructure stocks, or companies taking part in the buildout of this new technology. “There’s going to be a massive demand for computing power over the next decade,” said Kelly.

That’s why investing in the so-called picks and shovels of AI makes most sense.

Taiwan Semiconductor Manufacturing (TSM), the world’s largest chip foundry, is one stock benefiting from AI-induced change. “They’re making the leading-edge chips for all these companies,” said Kelly. “Their competitive position has strengthened over the years, while some of their competitors have faltered. They have scale. They have pricing power. And they have durable growth.”

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