And the winner is...o.k., this isn't the Oscars, and you're not going to read about Nicole Kidman or Martin Scorsese here. But we think the 10 winners of the first annual Standard & Poor's/BusinessWeek Excellence in Fund Management Awards deserve applause. (Both BusinessWeek and S&P are units of The McGraw-Hill Companies.) As the bear market grinds on, you're probably wary of mutual funds. With good reason: The speculative bubble and its aftermath ruined thousands of profes- centssional money managers -- and the investors who trusted them. But not all funds are in the tank. The past five years -- with wildly bullish and horribly bearish times -- provided a rare opportunity to test managers' skills. So, we teamed up with S&P's Global Fund Research team to identify those who navigated the markets with distinction.
Some of these pros are well-known. The two Bills -- Legg Mason's Miller and Harbor Fund's Gross -- are legendary in their ability to beat the stock and bond markets, respectively. Others are behind-the-scenes experts whose faces and names rarely turn up in the media. Ever hear of Tom Barry or Whitney George? They're masters of investing in small-company stocks. Rudolph-Riad Younes and Richard Pell are not household names, either. But their work as managers of the Julius Baer International Equity Fund is first-rate.
This elite group approaches investing in myriad ways. Some, like Barry, look for earnings growth; others, like the team at Tweedy Browne Global Value Fund, buy value stocks. Still others buy bonds. Some run concentrated portfolios of relatively few stocks, and others own hundreds. But all of the Top 10 "are seasoned managers whose experience you can measure in decades," says Phil Edwards, S&P's managing director of global-fund research. Adds analyst Gary Arne: "They're highly confident managers."
Here's how we selected the winners. We started with our annual Mutual Fund Scoreboard (BW -- Jan. 27 and Feb. 3), isolating those that made the "A" list -- funds awarded the top grade as a result of their five-year, risk-adjusted total returns. (Total return is appreciation plus reinvestment of dividends and capital gains before taxes.) This year, only 172 stock and 102 bond managers made that cut.
To winnow the field further, we set new hurdles: The fund must have $100 million in assets; the minimum investment must be less than $26,000; all funds must be open to new investors; and the lead manager must have five years of tenure at the helm. Using those criteria, the list narrowed to 40 finalists.
That's when the S&P analysts rolled up their sleeves. They first evaluated how the fund stacked up against its peers. They also looked at consistency of performance over one-, three-, and five-year periods. Expenses, turnover, and the type of stocks used to get returns were all taken into account.
Numbers tell only so much. The analysts conducted one-on-one interviews with managers, so they could get a sense of who these people are and how they think about investing. Were the managers inclined to take on more risk in the boom times and cower during the bear market? Were they inconsistent, turning their back on the investment philosophy of the fund?
The analysts also studied the funds themselves. Did assets fluctuate wildly with the winds of market change and investor sentiment? Does the fund-management company charge investors too much? Is the management company in flux, perhaps because of a buyout that could lead to manager departures? If the answer to any of these questions was yes, the fund was off the list.
When you put the funds and managers through these paces, only a few deserve the spotlight.
And here they are.
By Mara Der Hovanesian
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