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Fund Industry Pioneer Raises Its Game

Even the oldest can improve.

Bridget B. Hughes, 02/18/2010

Even the oldest mutual fund company can improve--and it has.

MFS' staying power is impressive. The firm, which launched the country's first mutual fund in 1924, has not only stuck around--a feat that shouldn't be taken for granted in an industry where funds, portfolio managers, and even fund families come and go--it also has become one of the 20 largest, with more than $75 billion in mutual fund assets.

Its history hasn't been without disappointment. MFS' most recent struggles came in the early 2000s, when two things tripped up the fund family. One, many of its most-prominent funds simply stunk during the bear market that began in early 2000. Two, MFS, like several other mutual fund complexes, was caught allowing some investors to market-time its funds.

MFS has come a long way since then. Although certain long-held attributes are as prevalent as ever, including its "grow our own" management culture, an aversion to the public spotlight, and a loyalty to its financial-advisor constituency, the firm seems stronger in other aspects. For example, it boasts a large and powerful compliance group, an experienced portfolio-management team and analyst bench that espouse the virtues of teamwork, and for the most part, a set of impressive long-term performance records that include a comparatively attractive 2008.

A Place to Call Home
MFS' mutual fund managers traditionally start as analysts at the firm and then rise to the portfolio-management ranks, often managing funds in teams. The firm's CEO, Robert Manning, started working at MFS when he was in college, eventually moved up to the firm's top fixed-income post, and took over the head office in February 2004.

Not everyone can follow Manning's path, of course, but since the early-2000s bear market--which led to a spate of manager and analyst turnover--MFS has made some appealing changes in the way it thinks about its investment team. One of the more important shifts was the development of a viable career-analyst track, complete with a compensation package that can compete with that of its portfolio managers'.

Retaining the firm's large global analyst staff--MFS' research team is more than 70-strong--is crucial. MFS has long been a proponent of fundamental research, and its investment approach, which eschews big sector bets, means stock-picking has to be strong across the board in order to produce good results. MFS' equity funds managed by analysts, which include MFS Research MFRFX and MFS Research International MRSAX, are good proxies for the health of its investment personnel. By this account, the firm is doing well: Those funds' relative returns have been strong in recent years, and we have become more confident in the sustainability of that success.

MFS has also seen improvement on the retention of its portfolio-management personnel. True, it lost one global portfolio manager just recently to another fund family. But its manager retention rate has improved in the past four years, and thus now ranks competitively among the largest fund families.

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