The Nine Biggest Surprises in Funds in 2007

Morningstar's fund analysts cover 2,000 mutual funds. Their full analyst reports, including Stewardship Grades, are available in Morningstar Principia Mutual Funds Advanced and Morningstar Advisor Workstation Office Edition.

It has been a turbulent year in the stock and bond markets, as both asset classes have bounced around due to bad news regarding the economy and credit cycle. And in the fund industry, we've seen some very significant personnel changes. Here's a rundown of the events that surprised us the most in 2007.

David Corkins Leaves Janus
Corkins, one of Janus' most experienced, accomplished managers, departed on Nov. 1. This was a big blow to a shop that appeared to be on the rebound; Corkins steered Janus Growth & Income JAGIX to a fine record before changing jobs twice to help turn around other funds. What's more, his departure came on the heels of veteran skipper Scott Schoelzel's exodus from Janus Twenty JAVLX, and was quickly followed by the departure of rising star Minyoung Sohn (who had taken over Growth & Income).

Jean-Marie Eveillard Back in Action
Another big surprise on the personnel front: Charles de Vaulx, who had taken over several First Eagle funds (including First Eagle Global SGOVX) in 2004 from longtime boss Jean-Marie Eveillard (who had retired), abruptly departed in March 2007. Eveillard was quickly brought back on board; he's to serve as manager for one year, then gradually scale back his duties over the following several years.

El-Erian Returns to PIMCO
In October 2005, Mohamed El-Erian, PIMCO's highly regarded managing director and senior portfolio manager who specialized in emerging-markets bonds, left to manage Harvard's endowment, a prestigious position. In September 2007, PIMCO announced it had lured El-Erian back to the firm; he'll become co-CEO and co-chief investment officer (along with legendary bond skipper Bill Gross) when he returns in January 2008. That's a coup for the firm, and it provides PIMCO with a clear successor to Gross when he retires.

Fidelity Contrafund Defies Expectations
Veteran manager Will Danoff carries a heavy burden. Between Fidelity Contrafund FCNTX, which closed to new investors in 2006, and other vehicles, he's run $90 billion to $100 billion for much of 2007. That's a staggering amount that can make buying and selling stocks an arduous process, and can cause a fund's returns to more closely correlate with those of its benchmark. And yet, spot-on calls on the energy sector, as well a bets on Apple AAPL, and BlackBerry maker Research In Motion RIMM have powered the fund to a 22% gain for the year to date through Dec. 10--more than double the return of the S&P 500 Index, this fund's bogy.

Fidelity's Abby Johnson Once Again a Contender
In 2005, Abby Johnson, the daughter of longtime Fidelity chairman Ned Johnson, switched roles at the firm, from heading up of its money management arm (the firm's flagship business, which was struggling at the time) to running a division that oversees administration for retirement plans. Although the latter division handles a lot of business for Fidelity, the move was seen as a demotion of sorts, and called into serious question whether she would take over for her father when he retired. However, she recently took on a higher profile again--in September, she was tapped to run a new unit that will market Fidelity's funds, in addition to her other responsibilities. Between that move and the departures of other potential successors Bob Reynolds and Ellyn McColgan, Abby Johnson may again be the favorite to take over the firm.

Conservative Fixed-Income Funds Rocked by Subprime Troubles
The subprime mortgage crisis had a direct, immediate impact on lower-quality debt, but eventually led to trouble among even higher-rated bonds. Fidelity Ultra-Short Bond FUSFX, for example, which keeps its interest-rate sensitivity low and generally hasn't been volatile, has suffered a 5% loss through Dec. 10--that's a big decline for such a conservative fund. Also, a number of money market funds, which aim to keep a stable net asset value of $1, held paper affected by the subprime debacle, and had to be bailed out by their management companies to avoid "breaking the buck."