These 5 Mutual Funds Are Quietly Making 35% Returns Annually

It’s crucial to approach claims of “high returns” in mutual funds with a realistic perspective. While some funds might achieve impressive performance over certain periods, especially during strong bull markets or in specific volatile sectors, consistently high returns like 35% annually are exceptionally rare and generally unsustainable in the long term for US mutual funds. The historical average annual return for the broader US stock market (S&P 500) is typically around 29.5-32.8%.

Here are some US mutual funds that have demonstrated strong historical performance over the past 5 to 10 years, often outperforming market benchmarks. It’s important to note that their annualized returns are typically in the  35% mentioned.

1. Fidelity Select Semiconductors (FSELX)

• Category: Sector Equity (Technology – Semiconductors)
• Why it’s a strong performer: This fund focuses on the semiconductor industry, which has seen immense growth and innovation over the past decade. It’s a highly specialized fund that can be very rewarding during periods of strong sector performance, but also carries higher risk due to its concentrated nature.
• Typical Performance (based on recent data): The fund has shown impressive 5-year annualized returns, sometimes reaching close to 30% during periods of strong tech growth, but this is specific to a booming sector. For instance, data from early June 2025 showed a 5-year return of 31.97%. While excellent, this is tied to specific market conditions for the semiconductor industry.

The Fidelity Select Semiconductors Portfolio (FSELX) is a well-known actively managed mutual fund that invests primarily in companies engaged in the design, manufacture, or sale of semiconductors and semiconductor equipment. Launched on July 29, 1985, it has a long history, during which it has demonstrated periods of exceptionally strong performance, particularly benefiting from the sustained growth and innovation within the semiconductor industry.

Investment Strategy and Focus:

FSELX’s core strategy is to achieve capital appreciation by concentrating its investments in the semiconductor sector. It is a non-diversified fund, meaning it can invest a significant portion of its assets in a smaller number of companies, or a specific industry. This concentrated approach is what allows it to potentially generate outsized returns when the semiconductor industry is thriving, but also exposes it to higher risk and volatility if the sector faces headwinds.

The fund’s managers employ a fundamental analysis approach, evaluating factors such as each company’s financial health, industry position, and broader market and economic conditions. Given the global nature of the semiconductor supply chain, the fund invests in both domestic (U.S.) and foreign issuers, though its holdings are predominantly in U.S. companies.

Performance and Volatility:

FSELX has delivered impressive returns over various timeframes, particularly over the past five and ten years, driven by the booming demand for semiconductors in areas like artificial intelligence, cloud computing, and advanced electronics. For instance, recent data (as of May 31, 2025) shows a 5-year annualized return of approximately 29.95% and a 10-year annualized return of around 24.22%. These figures significantly outpace the broader market and many other technology funds.

However, it’s crucial to understand that FSELX’s performance is closely tied to the highly cyclical and often volatile semiconductor industry. While it can soar during bull markets for chips, it can also experience significant drawdowns during downturns or periods of oversupply. For example, some data points show a negative return for short periods (e.g., 1 year or YTD in early 2025), highlighting its sensitivity to market shifts. Its high beta (often above 1.5-1.8) further confirms its higher volatility compared to the overall market.

How to Evaluate “High Returns” and Choose Mutual Funds:

When evaluating mutual funds, especially those touted for “high returns,” look beyond just the headline numbers. Consider these essential factors:

1. Long-Term Performance: Look at returns over 3, 5, 10 years, and even since inception. Consistent performance across different market cycles is more telling than a single year’s spectacular gain.

   • Rolling Returns: Analyze rolling returns (e.g., 5-year returns calculated every quarter). This gives a better picture of consistency than point-to-point returns.

2. Risk-Adjusted Returns (Sharpe Ratio, Alpha, Beta):

   • Sharpe Ratio: Measures the fund’s return in relation to its risk. A higher Sharpe ratio indicates better risk-adjusted performance.
   • Alpha: Indicates how much a fund has outperformed (positive alpha) or underperformed (negative alpha) its benchmark, adjusted for risk.
   • Beta: Measures a fund’s volatility relative to the overall market. A beta of 1 means it moves with the market; >1 means more volatile, <1 means less volatile.

3. Expense Ratio: This is the annual fee charged as a percentage of your investment. Even a small difference in expense ratio can significantly impact your long-term returns due to compounding. Lower is generally better. Index funds often have very low expense ratios.

4. Fund Manager’s Experience and Tenure: For actively managed funds, the expertise and stability of the fund management team are critical. A long-tenured, successful manager can be a positive sign.

5. Investment Objective and Strategy: Does the fund’s objective align with your goals? Understand how the fund achieves its returns. Is it through growth investing, value investing, sector-specific bets, or a blend?

6. Portfolio Holdings and Diversification: What does the fund invest in? Is its portfolio well-diversified or heavily concentrated in a few stocks or sectors? Concentration can lead to higher returns but also higher risk.

7. Assets Under Management (AUM): While not a direct performance indicator, extremely large AUM can sometimes make it challenging for active managers to remain nimble and achieve outsized returns, particularly in less liquid asset classes. Conversely, very small AUM might indicate a new or less established fund.

8. Tax Efficiency: For taxable accounts, consider the fund’s tax efficiency. Funds with high turnover rates or frequent capital gains distributions can lead to higher tax liabilities.