Flexibility is a common trait in this handful of front-runners.
The market's revival in 2009 has been a welcome sign after last year's fiasco, but uncertainty about the near-term health of the economy remains at the forefront of investors' minds. Every day a new commentator, industry pundit, or fund manager predicts the sustainability of the current rebound. Their takes range from the "the worst is over; get excited" to "this rally is a false start." If not overshadowed by the S&P 500 Index's crushing 37% loss last year (driven by a 22% loss in the fourth quarter), 2009 would seem to be a far better year. Through August, the S&P 500 is up almost 15%, while the Wilshire 5000 Index, a proxy for the entire U.S. stock market, has performed slightly better with a 17% gain. All Morningstar equity fund categories are in positive territory as are the fixed-income groups, except for the long government group.
As is the case every year, there are more than the handful of managers listed below that have the potential to win the award for Morningstar Domestic-Stock Manager of the Year. More importantly, this is not the official nominee list. That will be created by Morningstar's fund analysts in December, and after extensive debate we'll select the winner. As 2008 showed, things can change drastically in the year's final quarter. As always, we look for managers who have delivered superior returns in the current year while also proving they're not just one-hit wonders by consistently outperforming over time. We also look for strategies that are sound, and more importantly, repeatable going forward. Aligning interests with fund shareholders' also carries significant weight in the debate.
With those criteria in mind, here is a small list of current favorites.
Bruce Berkowitz and Team of Fairholme
As my colleague Mike Breen recently noted, following the cash is this large-blend fund's mantra. Investors have heeded that advice, and inflows have been robust. Since 2006, assets have grown from $3.8 billion to more than $9.3 billion--and that includes the fund's 30% decline last year. Those joining the party haven't been disappointed; the fund's 27.8% gain for the year to date through August 2009 trounces the S&P 500 Index's 15% rise, positioning it for another calendar year of outpacing its peers (which would make it nine for 10). Simplicity works for Berkowitz: His stock selection is driven not by complicated models, but rather by whether a stock, or, more importantly, its business, is trading cheap relative to its free cash flow. A willingness to hold cash helped cushion returns in 2008, and also provides flexibility to pounce on new ideas such as Pfizer
James Kieffer, Scott Satterwhite, and George Sertl, Jr. of Artisan Mid Cap Value
This fund's tenured team of Kieffer and Satterwhite has been an enduring success, both here and at sibling Small Cap Value
Karl Brewer and Team of William Blair Small Cap Growth
This small-growth fund's rebound in 2009 has been nothing short of spectacular. Its 54% gain through August tops the category and has softened its one-year decline to just 2%. Brewer and team are benefiting from both stock selection and portfolio positioning, as many of the fund's top holdings have been home runs so far this year. As of June, top holdings Jarden
Steve Romick of FPA Crescent
First Pacific Advisors makes the early list yet again this year after sibling New Income
Bill Fries, Connor Browne, and Ed Maran of Thornburg Value
Like William Blair Small Cap Growth