The Best Fund Managers of 2004
"You don't want a one-hit wonder to be running your mutual fund." That's advice from BusinessWeek Personal Finance Editor Lauren Young in summing up the lessons investors can take from the results of the second annual Best Mutual Fund Managers of the Year awards presented by BusinessWeek and Standard & Poor's (see BW, 3/22/04, "The Best Mutual Fund Managers 2004").
Nine fund managers took this year's prizes, based on five-year performance as well as such factors as expenses, turnover, and portfolio holdings. The winners were Julius Baer International Equity (BJBIX ), Calamos Growth & Income (CVTRX ), Calvert Social Investment Equity (CSIEX ), Dodge & Cox Balanced (DODBX ), Growth Fund of America (AGTHX ), Legg Mason Value Trust (LMVTX ), Managers Bond (MGFIX ), TCW Galileo Total Return Bond (TGLMX ), and Thornburg Value (TVAFX ).
Young discussed these top funds and, in addition, gave her views on a number of other funds and fund families in an investing chat presented Mar. 16 by BusinessWeek Online on America Online, in response to questions from the audience and from BW Online's Jack Dierdorff. Edited excerpts follow. A complete transcript is available from BusinessWeek Online on AOL at keyword: BW Talk.
Q: This is the second year that S&P and BW have given the Best Mutual Fund Managers of the Year awards. So, the envelope, please -- who were the nine winners this time? A:
Q: This is the second year that S&P and BW have given the Best Mutual Fund Managers of the Year awards. So, the envelope, please -- who were the nine winners this time?
A:Rudolph-Riad Younes for Julius Baer International Equity (BJBIX ). For convertibles, it's John Calamos Sr. and Nick Calamos -- for Calamos Growth & Income (CVTRX ). Calvert Social Investment Equity (CSIEX ) -- that's large-cap blend, the manager is Daniel Boone III. Dodge & Cox Balanced (DODBX ) -- it's a team for balanced. Growth Fund of America (AGTHX ) -- it's also a team and it's a large-cap growth fund. Bill Miller at Legg Mason Value Trust (LMVTX ). Dan Fuss at Managers Bond (MGFIX ). TCW Galileo Total Return Bond (TGLMX ) -- also a team. Thornburg Value (TVAFX ) -- Bill Fries.
Q: What are the criteria for being named one of the best managers? A:
Q: What are the criteria for being named one of the best managers?
A:We use our proprietary ranking system, looking at a fund's returns and comparing it with the amount of risk it takes. We also look at the consistency of performance, as well as expenses, turnover, portfolio holdings, plus a lot of extra digging goes on.
Q: As a follow-up, I didn't understand why there weren't 10 winners. A:
Q: As a follow-up, I didn't understand why there weren't 10 winners.
A:We had nine this year because we couldn't find a good small-company fund that meets all of our criteria -- namely, [a fund that's still open to new investors and has] an A rating from BusinessWeek. Literally, funds were closing as we were picking them. That's the main reason.
Q: Why are so many funds closing? A:
Q: Why are so many funds closing?
A:Huge inflows. Mutual funds had great performance in 2003 -- they're taking in a ton of cash, and they can't put it to work fast enough. That's why they're closing.
Q: Winner Growth Fund of America is one of the American funds -- any comments on that family, Lauren? A:
Q: Winner Growth Fund of America is one of the American funds -- any comments on that family, Lauren?
A:They really do a fantastic job. I think if you're going to work with a broker and pay a sales charge, this would be the place where I would tell investors to go. They have a great foreign fund -- Euro Pacific Growth (AEPCX ). They have an excellent value fund -- Fundamental Investors (ANCFX ). A good income fund -- Income Fund of America (AMECX ).
I cannot think of an area where they don't have a good fund. My one complaint about them, which is not new, is that they don't talk to the press.... However, they probably have the best annual reports that I've ever seen.
Q: What about American Century funds? A:
Q: What about American Century funds?
A:I think they're a really good fund family overall. I think American Century is very shareholder-minded -- they have low expenses, they offer many different kinds of products, and their bond funds tend to be very good.
One weakness that I've written about in the past is their Giftrust Fund (TWGTX ), which is designed mainly as a college-savings vehicle. It just really has never delivered the kind of long-term performance that it should. And I think they've announced some recent changes to remedy that, which is progress.
Q: Did the mutual-fund trading scandals have any impact on this year's selection of best managers? A:
Q: Did the mutual-fund trading scandals have any impact on this year's selection of best managers?
A:Yes, it did. It was plagued by the scandals on several fund fronts. We ended up dropping the Harbor Bond Fund (HRBDX ), which is run by Harbor but managed by Pimco. It has been made public that they were working with market-timing hedge funds in other portfolios.
Despite the fact that it wasn't in the Harbor Bond Fund, it didn't sit well with us. Also, one of the small-company funds I was looking at, which I will not name, had kind of an association, albeit somewhat distant, to the scandal, but it was enough to make us pause.
Q: What's your thinking on the Fidelity Low Priced Stock Fund (FLPSX )? A:
Q: What's your thinking on the Fidelity Low Priced Stock Fund (FLPSX )?
A:An amazing fund. I don't know how this guy does what he does. He tends to have more than 1,000 stocks in the portfolio. It's a huge fund with billions of dollars, investing in smaller companies, which is a big challenge. And yet, Joel Tillinghast delivers fantastic performance.
I actually spent some time with him a few years ago, and what I learned is that his entire life is his mutual funds. I mean, his main social outlet was MENSA happy hours -- a couple of times a month. He literally lives and breathes his funds. That's the kind of person you want running your portfolio.
Q: Isn't the best manager over the long haul a computer that produces an index fund? A:
Q: Isn't the best manager over the long haul a computer that produces an index fund?
A:I think certainly index funds are good for picking bigger companies, but I still think you can do better with an active fund in small and international asset classes. And certainly the large-company managers we pick do tend to beat the market. So, in general, indexing is smart, but there are exceptions -- and you'll find them here with our award winners.
Q: A testimonial: On your recommendation I bought Vanguard Health Care (VGHCX ), and I am pleased with the result. A:
Q: A testimonial: On your recommendation I bought Vanguard Health Care (VGHCX ), and I am pleased with the result.
A:Excellent. I'm so glad. It's nice to get some positive feedback. I already got some mean mail today, so that definitely balances it out.
I think this is a fund that you should really hang on to for a long time -- not a one-year, two-year kind of bet. It should be part of your portfolio for the long haul. It has a pretty high minimum -- I think it's $25,000. So, unfortunately, not everyone is willing to shell out $25,000. But it is in my portfolio -- I got in before they had the high minimums.
Q: What about a multi-asset-class fund, like T. Rowe Price Personal Strategy funds? A:
Q: What about a multi-asset-class fund, like T. Rowe Price Personal Strategy funds?
A:I think those personal-strategy funds are good for people who want to be on autopilot, who want somebody else to do the legwork for them. And that's fine. But I do think you kind of have to be all or nothing with one of these portfolios, because otherwise it throws your asset allocation out of whack.
T.Rowe Price, incidentally, is another fund company that I really admire -- low expenses, lots of good funds to choose from, and I think a firm you can trust.
Q: How about Janus Mercury (JAMRX ) and Janus Enterprise (JAENX ) -- any chance for recovery? A:
Q: How about Janus Mercury (JAMRX ) and Janus Enterprise (JAENX ) -- any chance for recovery?
A:Wouldn't I be a millionaire if I knew that one! David Corkins, who manages the Mercury Fund, has been at Janus for a while. I think David represents a lot of the things that made the company successful in the past. So if you're looking for old-school Janus, he's the guy. There aren't too many of them left. Jonathan Coleman [of Enterprise] has also been at Janus for a long time, but I believe he hasn't had as much experience on larger portfolios. I don't know his work as well.
I think that you wouldn't want both funds at this time, since I still feel like the Janus method of picking stocks is very similar among funds. But the one focusing more on large companies is Mercury, where Enterprise is midsize. So you do want to consider asset allocation when deciding which Janus fund to own.
Q: What is your overall opinion on AIM funds? A:
Q: What is your overall opinion on AIM funds?
A:They had amazing funds in the 1990s. I don't think performance has been as good more recently, and I'm not sure why. However, what they do, or the way they tend to pick stocks, is by looking at a company's earnings and evaluating if they will grow in the future -- some will call it momentum investing, but I know AIM doesn't like that term. Anyway, because earnings are growing, it's a style that really could benefit in the future.
So, their funds that I like the best are the blue-chip funds. They have a good European Growth fund (AEDAX ) and some good real estate funds. I really like some of their small-cap funds a lot. But some of the bigger funds, like Constellation (CSTGX ), haven't been as successful throughout the bear market. They do have a lot of products to choose from, and certainly there are some worthwhile funds there. And, they're so nice -- they're in Texas!
Q: What about Excelsior Value & Restructuring Fund (UMBIX )? Would you stick with this one? A:
Q: What about Excelsior Value & Restructuring Fund (UMBIX )? Would you stick with this one?
A:Yes, yes, yes. Terrific funds, terrific manager -- it's just great. David Williams, the manager, is another guy who has been around for a long time, knows his stuff, is consistent and quirky, and someone I respect a lot.
Q: What's your opinion on Dodge & Cox Balanced Fund [whose management team was a winner]? A:
Q: What's your opinion on Dodge & Cox Balanced Fund [whose management team was a winner]?
A:Dodge & Cox is kind of like a mini-Vanguard. Jack Bogle [founder of Vanguard] was here last week, and he told us that Dodge & Cox is one of the firms he admires more than pretty much everyone else, except maybe American Funds [see this Video Views segment with Bogle].
Last year on the list, we had Dodge & Cox Stock (DODGX ) [as a winner], but we dropped it this year because they closed the portfolio in January. So this is a great way to get the same stock-picking team. And right now, they're managing more than 65% of the stock portion of the fund.
They have, I think, 23 years average tenure on the portfolio -- some crazy number like that. They have exceptionally low expenses and excellent stock-picking skills. This fund is still open. And on the bond side, the bond-picking people are also some of the best in the business. But again, you have to think about the fund in terms of asset allocation, because it's a hybrid.
Q: An opinion, please, on MFS funds. A:
Q: An opinion, please, on MFS funds.
A:MFS -- well, they have been ensnared in the mutual-fund scandal. They're trying to be proactive and make things right with investors, which I applaud. They announced today some major initiatives -- they're changing the way they deal with research houses and soft dollars. They have plans to disclose expenses in shareholder statements. I think these are steps in the right direction.
And in terms of performance, which at the end of the day is what I think people really care about, they do have some excellent funds, including MFS Utilities (MMUFX ). Some of their international funds are great. Their Total Return Fund (MSFRX ) is very good. And they've got many other excellent portfolios to choose from. I'd stay away from their Emerging Growth Fund (MEGBX ), which was one of the portfolios caught up in the trading scandal.
Q: What lessons should an investor take from the results of the S&P/BW fund manager awards, Lauren? A:
Q: What lessons should an investor take from the results of the S&P/BW fund manager awards, Lauren?
A:You don't want a one-hit wonder to be running your mutual fund. All of the managers who made our list are people with serious experience. They know how to navigate up markets, as well as down markets. And they do it right.
Edited by Jack Dierdorff