Morningstar’s Fund Managers of the Year

01/15/2009 12:00 pm EST

Focus: FUNDS

Russel Kinnel

Editor, Morningstar FundInvestor

Russel Kinnel, editor of Morningstar FundInvestor, selects managers of three top funds that survived the financial crisis and market crash bowed but not broken.

No matter how you slice it, fund investors and managers alike suffered a setback in 2008. Outside of a handful of bond funds, just about everyone lost money.

[But] limiting losses makes it much easier for an investor to get back in the black. Moreover, our Manager of the Year award recognizes much more than a single year’s performance. It recognizes long-term performance and strong stewardship as well.

Domestic-Stock Manager of the Year: Charlie Dreifus of Royce Special Equity (RYSEX) is the sort of investor we’re confident in when the market turns south. He’ll buy only stocks that trade at a steep discount to his intrinsic value estimates. That means he’ll miss out on some fast-growing companies, but his approach protects against losses in tough times. He also demands high returns on invested capital and is a stickler for clean accounting and strong balance sheets.

Thus, when accounting scandals hit and people lose faith in companies’ risk controls, Royce Special Equity is a good place to be. True, its strategy isn’t one that lends itself to powerful rallies, but it has produced solid long-term returns with less risk than most... In 2008, the fund lost 19.6%. That’s an impressive 1,400 basis points better than the category average.

Fixed-Income Manager of the Year:  Bob Rodriguez and Thomas H. Atteberry of FPA New Income (FPNIX). I can only think of two managers who can claim to have largely predicted the mortgage-led meltdown in financials: Jeremy Grantham and Bob Rodriguez.

From his perch in Los Angeles, Rodriguez had a good view of the insane housing speculation and the crazy mortgages behind them. As someone who places capital preservation above all else, Rodriguez works furiously to squeeze risk out of his portfolio.

True, it meant passing up the chance for big returns, and he did miss some rallies. But when everything hit the fan in 2007 and 2008, the fund was on safe ground. The fund gained 4.3% in 2008. That’s 920 basis points better than the average intermediate-term bond fund. Its ten-year returns are in the top 5% of its category.

International-Stock Manager of the Year: David Samra and Dan O’Keefe of Artisan International Value (ARTKX) have done an outstanding job applying a deep-value strategy overseas.

They look for companies with clean balance sheets trading at big discounts to their estimates. That investment discipline kept them largely away from the financials that got pummeled. As a result, the fund lost 29%. Although that’s not pretty, it’s a far sight better than the 44% loss at MSCI EAFE.

The longer-term record is even more impressive. Since its 2002 inception, a $10,000 investment would be worth $22,561 compared with $14,297 for the MSCI EAFE. The fund recently reopened as assets have shrunk and opportunities have grown.

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