These managers came out ahead in a year of ups and downs.
In April 2016, Morningstar realigned the structure of the manager research team and formed a global multiasset and alternatives team. This year we combined the Allocation and Alternatives Fund Managers of the Year into one award in order to align with the change. Morningstar's press release about the realignment of the manager research team is available here.
Over the last two weeks, Morningstar has announced the nominees for Domestic-Stock, International-Stock, and Fixed-Income Fund Manager of the Year. Today, Morningstar reveals the nominees for Allocation and Alternatives Fund Manager of the Year. The winners will be announced on Wednesday.
Allocation and alternatives managers had to navigate through multiple storms in 2016. Despite a rocky start--the S&P 500 lost 10.3% in the first 42 days of the year--and a few unexpected outcomes, including Brexit and the U.S. presidential election, U.S. equity markets had a strong showing in 2016. All but one sector in the S&P 500 finished in positive territory, with healthcare being the only exception, and U.S. small- and mid-value stocks performed particularly well. Following a lackluster 2015, international developed stocks and both domestic and global bonds posted small gains in 2016. However, emerging-markets equities and commodities fared much better, delivering double-digit returns. Allocation funds that were tilted toward stocks tended to do well, and allocation funds generally outperformed alternatives funds. Many alternatives funds struggled in the first quarter's turbulence and failed to fully recover by the end of the year.
This year's nominees demonstrated superior ability in both asset allocation and stock selection in 2016. One year of strong performance doesn't guarantee a nomination, though. To qualify for Fund Manager of the Year, managers' funds must have Morningstar Analyst Ratings of Bronze, Silver, or Gold; they also must have impressive absolute, relative, and risk-adjusted returns over their tenures. All three management teams have either won or been nominated in years past, reflecting these funds' staying power.
Boston Partners Long/Short Equity BPLSX
2016 Return: 22.5%
2016 Morningstar Category Rank (Percentile): 1
Robert Jones has employed the same process since he took the lead on this fund in June 2004. Jones and his team select stocks based on three factors: valuation, business fundamentals, and momentum. The team's short book consists of "concept stocks," or names that are overhyped and have unstable business models. The fund has a small- and mid-cap bias, and its net long position can vary between 20% and 80%.
This fund had a banner year in 2016, returning roughly double the S&P 500 and beating 99% of its Morningstar Category peers. Both the long and short books generated positive returns; the team gradually reduced short exposure to 25% from 50% over the year, locking in returns on shorts in the first-quarter sell-off and gaining on the long side as the market rebounded. This Bronze-rated fund has been closed since July 2010 but has delivered for those who still have access. Over Jones' tenure through December 2016, the fund returned an annualized 12.6%, surpassing its category by 10.2 percentage points and the S&P 500 by 4.7 percentage points. Jones and his team won the Morningstar Alternatives Fund Manager of the Year award in 2014.
The Equity and Fixed-Income Investment Policy Committees
Dodge & Cox Balanced DODBX
2016 Return: 16.6%
2016 Morningstar Category Rank (Percentile): 3
After posting a 2.9% loss in 2015, this Gold-rated fund bounced back in 2016, gaining 16.6% and outperforming 97% of its allocation--50%-70% equity category peers. The fund can invest between 25% and 75% of its assets in stocks and has kept to the higher end of that range, fluctuating between 65% and 75% over the last decade. That has served as a tailwind in a rising equity market, but the fund has also benefited from its deep and collaborative investment team. The fund brings together a strong value-oriented equity sleeve, managed by the investment policy committee that runs Gold-rated Dodge & Cox Stock DODGX, and a strong fixed-income sleeve, managed by the investment policy committee that runs Gold-rated Dodge & Cox Income DODIX (a nominee for 2016 Morningstar Fixed-Income Fund Manager of the Year). A rebound in financials and prudent picks in the technology, communications, and consumer cyclical sectors boosted the equity sleeve. Meanwhile, a corporate-heavy, shorter-duration portfolio boosted the fixed-income sleeve.
The fund's equity tilt and value orientation have stung in the past. It faced steep losses in 2008, leading many to exit the fund. But patient investors have been rewarded over the long term.