Which of these managers will reclaim the title?
This past week, we've announced the final contenders for our Domestic-Stock and International-Stock Manager of the Year awards. Unlike those candidates, though, most of our finalists for the Fixed-Income award have actually made money for their shareholders this year.
It hasn't been easy. Many corners of the bond market--from the more daring arenas like high-yield corporate and emerging-markets debt to the staid municipal-bond sector--have suffered sizable losses in a historically trying year. Funds in the high-yield group have gotten slammed the hardest, with the category average down more than 30% this year (roughly tripling the category's 1990 losses when defaults on high-yield debt skyrocketed). But even the intermediate-term bond category is on pace to deliver its worst showing since late 1979/early 1980, dropping more than 7% so far this year, on average.
Against that backdrop, we've chosen to recognize bond managers who have thrived amid adversity. As in previous years, we don't just hand the award to the manager who has delivered the best returns over the past 12 months. If that were the case this year, we'd grab the nearest Treasury fund and call it a day. Not only are we singling out managers who've done a commendable job protecting shareholder capital in 2008's extremely tough market, we also look for those who ply durable strategies, earn good marks on stewardship, and boast a lengthy history of helping shareholders reach their investment goals in multiple market cycles.
Each of our four finalists for the 2008 Fixed-Income award has demonstrated worthiness under these criteria before--all have taken home the top prize at least once in the past. Here they are, in alphabetical order.
Bill Gross and Team
PIMCO Total Return Bond
Could this three-time Fixed-Income Manager of the Year nab a fourth crown in 2008? After notching a third win last year, Gross and crew's flagship charge has continued to show up much of the competition in this year's rough-and-tumble climate. A lot of what worked for the fund in 2007 has continued to work this year: The team avoided the worst trouble in the foundering nonagency mortgage and asset-backed sectors that have continued to plague some rivals, and the fund's core stash of agency-mortgage bonds and selective approach in the beleaguered corporate arena have helped it soldier through market turbulence better than most. While maintaining the fund's high-quality theme, Gross has opportunistically taken advantage of bargains in areas as diverse as municipal bonds, the senior debt of large financial firms, and select emerging-markets bonds.
Gross' acumen notwithstanding, PIMCO's formidable research capabilities across bond sectors go a long way toward explaining why this fund continues to find itself in the right place at the right time. Although the fund's girth is not without its challenges, it has richly rewarded many shareholders over the long haul.
Jeffrey Gundlach, Philip Barach, and team
TCW Total Return Bond
It's tough to be unimpressed by Gundlach and team's knack for delivering consistently topnotch results while working with a more limited tool kit than his intermediate-term bond rivals. That's not to suggest that the execution here is in any way simplistic. While Gundlach sticks primarily with mortgage bonds, his goal is to make the fund competitive with more diversified core bond offerings by utilizing his team's considerable mortgage expertise. Over time, he's done just that. Taking a look at the fund's performance in recent years, his portfolio of government agency-backed mortgage bonds topped the charts from 2004 through 2006 (we awarded him Manager of the Year in 2006), even as more credit-sensitive fare trounced higher-quality sectors over that stretch. But with mortgage-backed securities remaining at the center of the market's maelstrom since mid-2007, his top-quartile category ranking this year (albeit with a modest gain of less than 1%) is equally astounding, particularly as he's steadily moved just under half of the fund's assets into nonagency mortgage fare at fire-sale prices this year, an area of the market that has tripped up other managers.
The fund's rock-bottom price tag, which was slashed in 2003, is another trait that gives it an enduring edge, helping ensure that more of the fund's returns pass directly to shareholders year in and year out.