Morningstar's Managers of the Year

02/28/2014 10:00 am EST

Focus: FUNDS

Each year, Morningstar bestows its Fund Manager of the Year awards to fund managers excelling in four broad investment categories. Michael Herbst of Morningstar Research reveals this year's winners.

Steve Halpern: Joining us is Michael Herbst of Morningstar. How are you doing today, Michael?

Michael Herbst: Good. Thank you for having me, Steve.

Steve Halpern: Each year, Morningstar presents its Fund Manager of the Year awards. Could you tell us a little about this annual project and how, in particular, fund managers are selected?

Michael Herbst: Sure thing. What we're trying to do with the Morningstar Fund Manager of the Year is recognize exceptional performance for the trailing year, but also, more importantly, these managers must be Morningstar medalists; that is, they must have received a Morningstar analyst rating of bronze, silver, or gold.

Those medalists are just over 10% of the funds available for sale on the US marketplace, so that's pretty exclusive company. What we're looking at is the people, the process, the performance of the funds.

We're looking for risk adjusted performance over the long haul and, essentially, what we do is we field nominations from across our analyst team and then ultimately get in the room and hash it out.

Steve Halpern: Let's look at some of the winners in the 2013 survey. First, let's look at the domestic stock fund manager. Who came out on top this year?

Michael Herbst: Our winner for the domestic stock category was the Morgan Stanley Growth team, led by Dennis Lynch, and David Cohen, Sam Chainani, Armistead Nash, Alexander Norton, and Jason Young. We really wanted to recognize the efforts across multiple funds; small-, mid-, and large-cap funds.

This is a team whose stock selection really stood out. They were very active in some of the hot sectors in 2013, such as technology and bio tech, but it was really their stock selection in 2013 and, over the longer haul, that's driven their exceptional performance.

Steve Halpern: Now, is there a particular fund they're managing that our listeners should look at it or is it a group of funds?

Michael Herbst: It's a group of funds. It would include Morgan Stanley Focus Growth (US:AMOAX), Morgan Stanley Institutional Growth (US:MSEQX), Institutional Mid-Cap Growth (US:MPEGX), and Institutional Small Company Growth (US:MSSGX).

Steve Halpern: Now, looking at the international arena, who came out on top there?

Michael Herbst: Here we've got David Samra and Daniel O'Keefe on Artisan Global Value (US:ARTGX) and Artisan International Value (US:ARTKX).


This is pretty extraordinary, because this is a team that typically does better than the competition in tough markets, as they did in 2008, so it's remarkable they also outperformed in 2013, amidst a pretty strong stock market rally.

Steve Halpern: Now, fixed income has been a particularly challenging area with low interest rates. Who scored well there?

Michael Herbst: Here, Daniel Ivascyn and Alfred Murata from the PIMCO Income Fund (US:PIMIX) took the honors for 2013.

PIMCO caught a lot of flack from some early 2013 decisions to take on greater interest rate risk and more emerging markets exposure than most of the competition.

But what's telling here is that Ivascyn and Murata, actually, more than made up for that lost ground with strong security selection across mortgages, corporate credit, and currencies.

Steve Halpern: Finally, there's an area that you look at and I appreciate if you could help our listeners understand what makes up this group. It's called allocation funds.

Michael Herbst: Sure thing. What we're looking at here, are funds that have the flexibility to invest across more than one asset class, so, typically, that's going to be a mix of equities, fixed income, gold in some cases.

Here the winner was Steve Romick, Mark Landecker, and Brian Selmo from the FPA Crescent Fund (US:FPACX).

What's pretty extraordinary here is, this is an allocation fund that's driven strictly by valuation, so it's not sticking to a set asset allocation, if you will, and although equities really rallied in 2013, this fund actually had lower equity exposure than most of its peers.

Really, performance in 2013 was driven by exceptionally strong stock selection. What stands out here is, the fund held a cash stake of between 30% and 40% of assets through the year, so, the fact they were able to outperform, despite that cash stake in a rising market, is really telling.

Steve Halpern: Well, we really appreciate you taking the time today and sharing the Morningstar Fund Managers of the Year with us.

Michael Herbst: My pleasure. Thanks again for having us.

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