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Our Nominees for Domestic-Stock Manager of the Year

These managers were stalwarts in a horrific market.

Russel Kinnel, 12/16/2008

After a very bad year in the markets, I find myself writing a rather odd column about our nominees for Domestic-Stock Fund Manager of the Year. About the best any fully invested domestic-stock fund manager could do this year is lose 30%, while those having an off year are down twice that amount.

Yet, these nominees are as deserving as those in huge up years like 1999 and 2003. Limiting losses in a down market is more important to helping investors meet their long-term goals than maximizing gains in a rally. The argument that these funds should go into cash or shorts when they see a bear market coming doesn't hold up because most equity funds are required by prospectus to invest mostly in stocks and some with an equity-specific name have to be 80% or more in equities. Moreover, virtually no one has consistently timed the market to produce better long-term results than buy and hold investing. Finally, if you bought a fund that never piled into cash or shorts in its history it's illogical to expect that to happen.

Our manager of the year award recognizes not just superior single-year performance, but also great long-term performance. In particular, we want to reward managers who made a lot of money for a lot of people. Our 2007 winner Will Danoff, for example, put up outstanding results with billions of dollars in his fund. That's much more difficult and more important than earning a strong return in a $10 million fund. We also look for managers who are great stewards of shareholders' interests and who stay with their proven strategies rather than follow investing trends.

Without further ado, here are this year's nominees:

Bruce Berkowitz of Fairholme Fund FAIRX
Berkowitz was the odds-on favorite in August, by avoiding financials like the plague and selling much of his energy positions near the energy peak in June and July. However, a falling market led him to invest more, and some of his favorite stocks got thumped in the fall. Now the fund's 34% loss is greater than any other nominee's. Still, he merits the nomination for doing an excellent job this year and in every year since he started the fund. Few Buffett-inspired managers have done a better job putting his philosophy into practice. He builds concentrated positions in well-run companies and is very patient in waiting for a reward. He also allows cash to build when he can't find good investments. This decade has been a treacherous one, but you wouldn't know if from this fund's performance.PAGEBREAK

Scott Brayman of Champlain Small Company CIPSX
Brayman and his team have done an excellent job plying a valuation-sensitive small-cap growth strategy since setting up shop in 2004. Prior to that Brayman had eight strong years at Sentinel Small Company SAGWX. The team's attention to valuations and strong cash flows has helped it to withstand the market deluge so far in 2008. By looking at the top holdings, you can see the fund has largely avoided the stocks that suffered outsized losses. We also give big points to Brayman for closing the fund in a timely manner. When he set up shop he said he'd close when all assets in the strategy reached $1.5 billion, and he stuck to it. No doubt that helped to give him the flexibility to produce strong performance rather than getting slowed by bloat.

Chris Browne, William Browne, and John Spears of Tweedy, Browne Value TWEBX
Once again Tweedy's patient conservatism has come through for shareholders. The venerable firm follows a Ben Graham approach to value. That and its penchant for all stocks of all market caps have kept the fund from standing out in recent years, yet here it is again with a strong year and strong trailing returns. The firm's roots are in a brokerage that focused on hard-to-get thinly traded stocks (Warren Buffett bought his first Berkshire shares there), and there's still a clear interest in lesser-known value stocks--though they've since included large caps and plenty of foreign stocks to their portfolio mix. Lately, they've found a number of bargains in the market but they'll patiently wait in pricier markets for cheap stocks to emerge. These guys hate to lose clients' money and it shows in their 27% loss this year and in their superior long-term performance.

Harry Cohen and Scott Glasser of Legg Mason Partners Appreciation SHAPX
Hersh Cohen and Scott Glasser's fund has been through a few name changes over the years but its strategy and performance have not. The fund was part of the Shearson line-up, was renamed Smith Barney when the firms merged, and was renamed again as Legg Mason when Legg Mason acquired Citi's asset-management business.

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