Best Funds? Look to the Best Managers

The Annual Awards for Excellence in Fund Management prompt some thoughts on investment performance and priorities from S&P's Philip Edwards

If you're shopping for mutual funds, one place to start is the list of winners in the Annual Awards for Excellence in Fund Management presented by BusinessWeek and Standard & Poor's (see BW, 3/21/05, "The Best Fund Managers"). Philip Edwards, managing director of S&P's Investor Services, points out that in the previous two years, the winning managers "outperformed their peers for the subsequent years."

The 18 winners (nine of them repeaters) cut across styles and sizes, including value and growth, mid-cap and large-cap, equities and bonds, and international. One category missing is small-cap, which Edwards explains as resulting from the fact that many small-cap funds have closed to new investors. Also missing are sector funds, although Edwards says S&P does recommend at least two of them, the AIM Real Estate Fund (IARAX ) and the Jennison Natural Resources Fund (PGNAX ). One winning manager has an unusual distinction: He's a descendant of Daniel Boone, Daniel Boone III, who runs the Calvert Social Investment Equity Fund (CSIEX ), a large-cap blend fund that specializes in socially responsible investments. These were a few of the points Edwards made in an investing chat presented Mar. 22 by BusinessWeek Online and S&P on America Online, in response to questions from the audience and from Jack Dierdorff of BW Online. Following are edited excerpts from this chat. AOL subscribers can find a complete transcript at keyword: BW Talk. Q: Before we get into mutual funds, do you have any comments on the way the market is going? A: The market is lacking leadership at this time and is demonstrating some concern over oil prices and inflation. However, we still expect some growth in the market this year, but it will probably be in the mid-single digits. Q: S&P and BusinessWeek are out with the 2005 Excellence in Fund Management Awards. How are the winners selected? A: We go through a process of initially identifying funds using the BusinessWeek screens that look at five years of performance, and we take the top performers in each style. From that, we undertake in-depth research into a wide range of areas, including manager experience and tenure, the level of expenses, the discipline of the investment process, and the availability to retail investors. From this information, we select a very short list of funds that have demonstrated strength across all of those factors. Q: Is an award to a manager a good sign that his or her fund would be a good pick for investors? A: We think so. The proof is in the fact that this is the third year we've picked managers for the awards. In the first two years, the winning managers outperformed their peers for the subsequent years. Q: Can you give us a sampling of the best managers and their funds? A: Sure. In the large-cap growth area we have a well-known group and a well-known fund -- the T. Rowe Price Growth Stock Fund (PRGFX ), managed by Robert Smith. In the mid-cap value area, we like the Goldman Sachs Mid-Cap Value Fund (GCMAX ). On the international side, we favor Tweedy Browne Global Value (TBGVX ). And on the fixed-income side, we really like Dodge & Cox Income Fund (DODIX ). Q: Looking over the list, I don't see any small-cap funds. Any ideas why? A: Absolutely. Small-cap funds have been closing lately. As a result, it's hard to find a good manager [of a fund] that's still open. We'd rather not make a recommendation there than recommend someone who doesn't meet our standards. An alternative here would be an index fund. Q: How about bond funds among your winners, Phil? A: We have four bond funds on our list. The Dodge & Cox fund that I mentioned before; Harbor Bond Fund (HABDX ), managed by Bill Gross, the same person who runs Pimco Total Return (PTRAX ); the Managers Bond Fund (MGFIX ); TCW Galileo Total Return Bond Fund (TGLMX ); and finally Eaton Vance Municipal Bond Fond (ETMBX ). Q: What insights do you derive, Phil, from the shifts among the winners in the three years of the awards? A: Well, frankly there haven't been a whole lot of shifts in the winners. We have tried to maintain some stability in the list because we believe funds are long-term investments. Where there has been change, it's mainly because the fund has closed to new investors, or there has been some manager turnover. What we've primarily been doing is adding to the list of winners each year. Q: I don't see any sector funds in the awards list -- are there any S&P recommends? A: No, at this point we don't have recommendations on too many sector funds. However, we do like the AIM Real Estate Fund and the Jennison Natural Resources Fund. Q: Calvert Social Investment Equity is a repeat winner -- is this a sign that virtue can bring reward if an investor wants to be socially responsible? A: Yes. The Calvert Fund, which happens to be run by a descendant of the original Daniel Boone, is required to invest only in those companies deemed to be socially responsible by analysts at Calvert. For example, they will screen out companies involved with nuclear energy, guns, and liquor. Q: In this market, will value funds outperform growth funds? In a rising interest rate environment, what type of funds do best? A: Well, typically what you'd see in the later stages of a recovery is that value funds would do better. However, value funds have done very well throughout this entire recovery. So it will be interesting to see whether they will continue to outperform. Q: What do you think of the Davis Opportunity Fund (RPEAX )? A: We have followed this fund for a while, and it has an excellent track record. It's a bit of a go-anywhere fund -- meaning that its style is likely to change over time as the manager pursues opportunities in his stock selection. As a result, it's sometimes difficult to use within an asset allocation. Q: Do you believe it is time to reduce holdings in REIT mutual funds? A: Yes. At the very least, an investor should be trimming from back from the stellar gains the [funds] have been experiencing. I'm not sure anyone should be absent in an asset class, so I wouldn't totally sell out. But I certainly would be looking to take profits.

[此贴子已经被作者于2005-6-24 12:51:29编辑过]