Fund Managers of the Year

01/17/2003 12:00 am EST


Russel Kinnel

Editor, Morningstar FundInvestor

Morningstar has long been known as the industry leader in mutual fund information and advice. In recent years, they have also become a leader in stock research and analysis. We are very pleased to add Morningstar to our coverage in The Money Show Digest. In a special annual feature, the service has chosen the top fund managers of the past year. Director of mutual fund analysis, Russel Kinnel, unveils the latest winners.

"Fund managers seemed a lot more heroic a few years ago when they were producing huge returns. Today, they look like a humbled lot, as nearly every stock fund finished 2002 in the red. In another sense, though, the best fund managers have proved their mettle in the bear market. It’s not pretty, but this is when they earn their keep. We looked for managers who have enjoyed a great year and produced strong long-term performance. In addition, we wanted managers who put shareholders first and invest with conviction. Drumroll please…

"Our domestic-stock manager of the year is Joel Tillinghast, manager of Fidelity Low-Priced Stock (FLPSX). Through good times and bad, Tillinghast has kept this $15 billion juggernaut ahead of more nimble competition. Running that much money in small-cap stocks required Tillinghast to pick more stocks and do more research than his peers. Fortunately, he had the determination and smarts to pull it off. In the end, he has made billions for his shareholders. His fund owns nearly 900 names, yet he knows every one of them. (We’ve tried to stump him by asking about some of his smaller positions, but he can instantly tell us the key issues with each stock.) In 2002, his fund lost 6.2%. That's much better than most of his peers, but a handful did even better. Yet, when you stand back and look at the fund’s long-term performance, it dwarfs the competition. It’s high time that we recognized one of the best managers in the history of funds.

"Our fixed-income mangers of the year are the management team at Dodge and Cox Income (DODIX ). These managers also delivered remarkably dependable performance. This fund outperformed its peers in every single period over a 10-year stretch--a feat no other fund could match. The secret is that management focuses on issue selection rather than big interest-rate or credit bets. By diligently researching each company’s balance sheets, these managers can add five basis points here and ten basis points there. We were also impressed by what the fund didn’t own. It holds more in corporate bonds than many intermediate-bond funds, and that was a recipe for trouble in 2002 as investors ran away from corporate bonds for fear they would get caught holding the next Enron. However, this fund not only avoided the disasters, but it found enough winners to produce an outstanding 10.7% return in 2002. The fund has been a standout over the long haul, too. Its returns for the trailing five- and ten-year periods are in the top decile of its category. This is one of those funds you can buy and forget about. There’s very little turnover among managers and even less change in strategy. For the record, the managers are: James Dignan, Thomas Dugan, Dana Emery, John Gunn, Jeffrey Klein, Peter Lambert, Charles Pohl, Kent Radspinner, Larissa Roesch, A. Horton Shapiro, and Robert Thompson.

"Our international-stock managers of the year are Richard Pell and Rudolph-Riad Younes, managers at Julius Baer International Equity (BJBIX). Younes and Pell follow a much bolder strategy than the other winners, but they have still succeeded in producing steady outperformance. They begin with a top-down assessment of sectors and countries and then adjust the portfolio accordingly. They also do thorough company research, which probably explains why they have succeeded where other top-down managers have failed. Younes and Pell have shown an uncanny knack to stay one step ahead of the market. They’ve beaten their peers in growth years and value years. Though many of the heroes from 1998 and 1999 are now goats, Pell and Younes got out in time to protect shareholders from the worst of the bear market. The fund has now outperformed in every full calendar year since they took over in mid-1995. In 2002, it lost a little less than 4% to place in the top 5% of foreign funds. Even more impressive is the 10% annualized return that they’ve produced over the trailing five years, besting all but five foreign funds."

Related Articles on