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Topnotch Funds That Defy the Odds

Some successful managers don't subscribe to conventional investing wisdom.

Gregg Wolper, 06/26/2007

In general, we like funds that exhibit certain traits that we've found more likely to provide success over the long term. For example, we tend to favor managers with low turnover--meaning they stick with their companies for years rather than trying to guess next quarter's trends--and who have the guts to put a meaningful portion of fund assets into a relatively moderate number of picks.

However, these and similar points are intended to serve as guidelines, not rigid rules. As it turns out, some outstanding managers disdain these habits--yet their long-term performance shows they know what they're doing. The following managers are not the only ones triumphing by taking approaches that typically lead to mediocrity, but they provide fine examples.

Frank Jennings, Oppenheimer Global Opportunities OPGIX
We tend to shy away from equity-fund managers who try to beat the competition by relying in part or in whole on their opinion about the overall level of the market. Even the smartest managers and market strategists--and economics professors and central bankers, for that matter--seem to misfire with such estimates at least as often as they hit the mark. Top-flight fund managers have a much better track record identifying specific companies that are in position to prosper yet are trading at bargain prices.

But Frank Jennings begs to differ. Although he certainly does intensive fundamental analysis of individual firms, he also bases some investment decisions partly on his views of overall market levels as well as considerations of macroeconomic conditions in regions and particular countries. Most managers who end up with large cash stakes take great care in telling us that they're not making a market call--they just can't find enough individual companies that meet their rigid standards at the right price. Not Jennings.

Although his record on such calls isn't perfect--how could it be?--it has worked often enough. Along with his stock-picking, some timely moves into bonds or cash and the occasional currency hedge have given the fund the second-best 10-year record in the world-stock category.

Rudolph-Riad Younes and Richard Pell, Julius Baer International Equity BJBIXJulius Baer International Equity II JETAXHeritage International Equity HEIAX, and ING Foreign IAFAX

Rudolph-Riad Younes and Richard Pell tend to use much more macro-level analysis than other top managers. Their macro views are more about big-picture growth trends and the like rather than stock-market calls, and such views tend to affect their sector preferences rather than influencing them to move heavily into cash or bonds. Even so, it was in character when a few years ago they were vocal about the S&P 500 Index being sharply overvalued.

What's even more noteworthy, though, is the size of their portfolios--and their unwillingness to make a strong commitment to any particular stock. Julius Baer International Equity currently has more than 500 holdings, and it's rare to see any company get much more than 2% of assets: The top pick in the current portfolio has just 1.7%. Usually, that's the sign of managers who are inadvertently watering down a portfolio with scores of holdings that don't really excite them, simply out of fear of lagging the index by an amount that could draw unwelcome attention.

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