(Fortune Magazine) -- Abraham Lincoln is often credited with saying, "It's not the years in your life that count, it's the life in your years." Whether it was Lincoln or some other sage who first uttered the maxim, it holds as true for mutual funds as it does for people. So while investors and financial advisors often seek out funds and managers with outstanding long-term records, it's worth keeping an eye on new offerings as well - and there are many to track. Financial firms have introduced more than 100 new funds so far this year, and about 500 in each of the past two years, according to research firm Morningstar.
Admittedly, many of the newbies are unremarkable flavor-of-the-day funds brought out by companies looking to compete with rival firms or cash in on the latest market trends. Some of the rookies, though, have genuine all-star potential, whether because of a smart strategy, proven management, or - as you'll find in the funds that follow - a combination of both. Adding to their appeal, new funds can actually have some advantages over their more established counterparts. They tend to be smaller, for example, allowing managers to invest more nimbly. We asked Lipper to screen for young funds with outstanding records, and we looked at new portfolios from respected fund houses. We then combed the list seeking the most interesting prospects, favoring those from smaller companies or with uncommon strategies. We profile our selections below.
Schneider Value
Launched in October 2002, this fund loads up on companies going through harsh - and presumably temporary - downturns. Among the stocks manager Arnie Schneider III owns are names like mortgage lender Countrywide Financial and coal producers Consol Energy, Massey Energy and Arch Coal. Schneider waits patiently for the earnings and share prices to recover. "We're investing six to 12 months before anyone will see the first visible signs of improvement," says managing director Steve Darby. When those tip-offs come, though, the fund tends to profit handsomely; it has averaged returns of nearly 18 percent a year over the past three years, including a scorching 32.7 percent gain over the past 12 months. A couple of caveats apply, though: The fund requires a minimum investment of $20,000, and it is not available for purchase through the Fidelity and Schwab supermarkets.
Bridgeway Small-Cap Value
Bridgeway founder John Montgomery has earned a sterling reputation as a quantitative fund manager, using a variety of computer models to screen for winning stocks. In 2003, Bridgeway began offering its Four Corners funds - a quartet that slices the universe of stocks according to the size/style grid: large-cap growth, large-cap value, small-cap growth and small-cap value. Montgomery and his team start with the 3,500 most liquid U.S. equities, sort them into four categories, and then let the computer algorithms work their magic. "We're extreme in following the models," says Montgomery in explaining his buying process. "We don't overlay a fundamental, we don't call management to ask them, we don't track any macro-economic-type things. It's a bottom-up stock-picking process, and it's highly quantitatively driven." While all four are worth consideration, we'll single out Bridgeway Small-Cap Value because of it's stellar returns (21 percent a year over the past three years) and the fact that many established small-cap value funds are closed to new investors.
Oakmark Global Select. Foreign funds have been extremely popular - and profitable - in recent years, so it's no surprise that the category has seen a proliferation of new names. For pure star power it's hard to beat the new offering from Oakmark, the esteemed value family.
Two Oakmark stalwarts, Bill Nygren, who runs domestic funds, and David Herro, an international manager, spotted similar themes as they scanned the markets for opportunities. Top-quality companies were relatively cheap, they believed, as blue chips continued to post strong earnings and risk premiums elsewhere shrank. They decided to pool their insights by forming Oakmark Global Select, which opened in October 2006 as a highly concentrated fund of the two managers' 20 most appealing ideas. "Everything we've ever started here, including the Oakmark Global Select fund, has come about because investment people at Oakmark wanted more of their capital invested in a certain area and then we built a fund around it," says Nygren. Rather than divide the portfolio into distinct, independently managed sleeves, the two pros work together to pick the stocks that have the greatest potential. "We're each bringing our dozen or so favorite ideas to the table," Nygren says. The first six or seven on each list slide into the portfolio, and the managers then debate the rest of the roster, discussing which stocks make sense both individually and as part of the mix.
The duo's process has produced a gain of about 20 percent since the fund was launched, and top holdings recently included British beverage giant Diageo and pharmaceutical heavyweight GlaxoSmithKline as well as longtime Nygren favorites such as McDonald's and Washington Mutual. Annual expenses are higher than we'd like, at 1.75 percent, but they should come down as the fund adds to its $357 million in assets.
UPDATE: TEN BEST STOCKS FOR 2007
WHAT WE SAID
When we were preparing Fortune's annual Investor's Guide last December, there was plenty to worry about. Rebounding oil prices, the cratering housing market, and a foundering auto industry all seemed capable of tripping up Wall Street's four-year bull market. So we selected, as our best stocks for 2007, ten modestly valued companies that wouldn't require a thriving economy to post good stock returns.
WHAT HAPPENED
So far, our ten stock picks returned an average of 20 percent through June 27 - more than double the 8 percent return of the Standard & Poor's 500 over the same period. The best-performing stock in the S&P this year, RadioShack (RSH, $33), has returned a gratifying 95 percent since we plugged it. New CEO Julian Day has done a great job trimming costs. His next task - growing top-line sales - may prove harder. At the current price, we'd be taking some profits.
We recommended three energy-related stocks integrated oil company Conoco-Phillips (COP, $77), deepwater oil driller Diamond Offshore (DO, $102), and coal-mining-equipment maker Joy Global (JOYG, $59). They've returned 16 percent, 36 percent and 34 percent, respectively. With energy demand growth continuing to outpace new supply, all three still look like buys.
General Dynamics (GD, $78) has returned a subpar 6 percent, but we're standing by it. The Gulfstream private-jet business remains a gem. And keen demand for its mine-resistant vehicles has become a growth driver.
Altria (MO, $70) has returned 13 percent. It spun off its Kraft Foods unit in March, and investors (including us) hope the company's next step will be to break up its domestic and international tobacco operations, unlocking further value. Microsoft (MSFT, $30) has been flat - 3 percent total return - but we're still fans.
Our financial picks - AIG (AIG, $70) and J.P. Morgan Chase (JPM, $49) - haven't done much either. We still think the stocks, which have returned 2 percent and 6 percent, respectively, are undervalued and like them as turnaround candidates. But predicting the timing of turnarounds is always tricky.
Our sole money loser has been Southwest Airlines (LUV, $15), with a negative 3 percent total return. Southwest continues to grow revenue, but the new routes and markets don't seem to be adding much in terms of profit. Throw in Southwest's rising labor costs, and this pick has us worried.
Jon Birger and David Stires contributed to this article. 
