Good Guys Get Their Due
January 12, 2004
Given the current scandal plaguing the mutual fund industry, it is now more important than ever to recognize the efforts of those who have stayed true to shareholders and generated outstanding long-term results.
That's what Morningstar is saying about its latest Manager of the Year awards, long viewed as a measure of strong single-year performance. The Chicago-based fund tracker said that long-term track records and managers who have made "real money" for investors are also an important part of the selection process. With all the indiscretions and finger pointing that have come to light since early September, the industry could use some positive feedback.
The winning stock pickers for 2003 include skippers from the two largest fund complexes - Fidelity Investments and Vanguard Group. In the domestic equity category, the management team at the $20.8 billion Vanguard Primecap Fund and the $6.2 billion Vanguard Capital Opportunity Fund took home the honors.
Veterans Howard Schow, Theo Kolokotrones and Joel Fried epitomize what investors should look for in a manager, according to Russel Kinnel, director of fund research at Morningstar.
"They apply a rigorous fundamental approach that takes them on a slightly different path from other managers," Kinnel wrote on the company's Web site last week. "Using a contrarian growth strategy, they have a knack for making a killing in out-of-favor growth stocks."
Despite its enormous size, Vanguard Primecap has been able to generate stellar returns for a long time. Its 15-year return of 15.1% on an annualized basis trumps the S&P 500 by roughly 3 percentage points. In 2003, the large blend offering posted a 37.8% return. Since the team took over Vanguard Capital Opportunity in 1998, the fund is up 20.8% annualized compared with 3.6% for the S&P 500. Its 2003 return was an eye-popping 49.6%.
What sets them apart is that they don't chase prevailing trends but rather adhere to the same strategy every year, Kinnel said. By sticking to fundamentals, the trio endured the bursting bubble much better than their stock fund counterparts. Their refusal to hit the panic button after Sept. 11 and the third year of the bear market earned them decent profits in times of crisis. After being a bridesmaid for several years, the folks at Primecap finally got to be a bride.
Taking home the hardware for best international stock manager was Bill Fries, who runs the $202 million Thornburg International Value Fund. His portfolio focuses on dividend-paying blue chips along with some higher-risk stocks that have attractive growth prospects. While he invests across a wide spectrum of market capitalizations and markets, he currently has a robust 25% stake in emerging markets. With only 50 stocks in the whole portfolio, that strong emerging-markets weighting makes the fund the most aggressive international stock fund around, Kinnel said.
In 2003, the fund posted a 40% return on the success of that bold bet. Since its inception in 1998, the fund has placed in the top 10% in its category, which is quite impressive given the fluctuations between growth and value, large caps and small caps and the varying strength of the U.S. dollar. Another upside to this gem offering is that Thornburg posts new purchases to its Web site along with a synopsis of the firm's business.
In the fixed-income genre, Fidelity Investment's municipal bond team took first prize, which comes as sort of a surprise considering the firm's reputation for being a stock-picker's shop. But the company has brought in some people on the bond side who have really turned things around, Kinnel noted.
Dwight Churchill, Charles Morrison and Christine Thompson make great picks based on quantitative research and "good old-fashioned human analysis."
The muni team avoids large speculative bets and aims to add value to the portfolio by making smaller bets on issues and sectors. Essentially, they offer low costs, great research and very dependable funds, Kinnel said. Another factor that has contributed to the team's success is that institutional giants Pimco and Western Asset are more concerned with taxable bonds than munis.
Fidelity's expansive reach within the retail investment community has enabled it to beef up its muni group, something that not many firms can boast. Among the 16 Fidelity Spartan Municipal Funds, all but one placed in the top 25% in its category in 2003. And amid a monstrous stock rally, a 5.1% return for a bond fund is particularly impressive, which is what the Fidelity Spartan Municipal Income Fund put forth last year.
Copyright 2004 Thomson Media Inc. All Rights Reserved.