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Our 2007 Fund Managers of the Year

These veterans have enriched many shareholders.

Christine Benz, 01/08/2008

Philosophy 101 students are often asked to consider whether a tree falling in the forest makes a sound if no one is around to hear it. Morningstar analysts have often pondered a similar question in relation to fund investing. If a manager puts up great returns that real human shareholders weren't around to earn--either because the fund was ultrasmall at the time or because the fund was so volatile that investors bought and sold at poor times--is he or she really a great manager?

Maybe. After all, closing a fund to preserve future returns for shareholders is one of the most shareholder-friendly actions that a fund could take.

But those managers whose efforts have enriched many shareholders over a long period of time also deserve praise. Morningstar's three Fund Managers of the Year for 2007 fit that description. All have delivered strong absolute and relative returns for huge numbers of investors over many years. Their terrific Morningstar Investor Returns, which demonstrate that their shareholders have actually pocketed the lion's share of their published total returns, attest to their ability to steer steady ships that have kept shareholders aboard in all types of weather.

When making our Fund Manager of the Year selections, our deliberation process doesn't stop with a consideration of the number of shareholders that a fund has enriched and a fund's investment results in the current calendar year and over the long haul. We look for managers who show courage in their convictions and who aren't shy about differing from the consensus, even if that comes at the expense of short-term performance. After all, to be better than the competition, you've got to be willing to differ from it. We also favor managers from shareholder-friendly firms. Good stewardship is an important factor in successful investment management, and it stands to reason that top managers would exert a strong influence over their firms' cultures, fee-setting policies, and so forth.

Without further ado, here are this year's three winners.

Domestic-Stock Manager of the Year: Will Danoff
Fidelity Contrafund FCNTX and Fidelity Advisor New Insights FNIAX
When it comes to enriching real human shareholders, Fidelity Contrafund's Will Danoff sets the gold standard. A fixture in 401(k) plans, Contrafund has been enormous for more than a decade, yet Danoff hasn't been content to put the fund on autopilot and hug the S&P. Instead, he prides himself on staying a step ahead of the competition and berates himself on the very few occasions when he has not. In 2007, for example, Danoff's embrace of long-unloved growth-oriented firms has helped Contra and Advisor New Insights leave the S&P 500 and the typical large-growth fund in the dust. The funds' long-term results have been similarly impressive: Both have bested the index and rival funds by breathtaking margins during Danoff's tenure. Even more impressive has been Danoff's consistency. The fund's showing in 2002's dreadful market, when it lost 10% even as the S&P 500 posted a devastating 22% drop, testifies to his sharp maneuvering and commitment to growing and preserving shareholder capital amid all market environments. Whereas rival large-growth managers were content to excuse their losses that year by saying, "Our style was out of favor," Danoff was not.PAGEBREAK

Danoff's success here has created a virtuous circle for shareholders. Simply put, the fund has been easy to own, and that, in turn, has prompted investors to add to their holdings at opportune times. As a result, the typical Contrafund shareholder has actually bested the fund's published total returns over the past decade, pocketing a handsome 11.5% return versus the fund's stated return of 10.9%. True, we've voiced concerns that Contrafund isn't as nimble as it once was, but it's impossible to deny the magnitude of Danoff's achievement here.

International-Stock Managers of the Year: Hakan Castegren and Northern Cross Team
Harbor International HAINX
Hakan Castegren took home our Fund Manager of the Year award back in 1996, and we're happy to note that he and his team have continued to deliver great returns for investors over the subsequent decade. This year, we're giving the award not just to Castegren but also to the team that supports him: Jim LaTorre, Howard Appleby, Jean-Francois Ducrest, and Ted Wendell of Northern Cross. Under the watch of these talented investors, the fund notched a tremendous gain in 2007, owing to some well-chosen names in the energy and metals industries. Its long-run returns have been even more impressive: Bill Rocco recently noted that its 15-year return is the best of any foreign large-value fund.

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