Here's our final list of this year's elite bond-fund managers.
At the end of the year, thoughts turn to roasting chestnuts, college bowl games, and New Year's resolutions. Or, if you're into mutual funds, they may turn to Morningstar's Manager of the Year Awards.
Ours sure have.
Earlier this month, Morningstar's fund analyst staff convened to discuss our 2006 nominations for the Fixed-Income Manager of the Year. As in the past, we're not just looking for a manager or team who has beat the pack during a single 12-month period. Instead, our candidates must have also shown themselves to be champions of fund owners' interests by taking friendly steps such as keeping costs low and investing large sums in their funds. Plus, they wouldn't be considered unless we also thought they had insightful strategies that gave them lasting competitive edges over their peers.
Below are our five finalists for the 2006 honor. Christine Benz, Morningstar's director of fund analysis, will announce this year's victor, along with the winners in the domestic-stock and international-stock categories, on the morning of Jan. 3 on CNBC.
Dan Fuss and Kathleen Gaffney
Loomis Sayles Bond
Topnotch results are nothing new here, though. By looking out several years when making investment decisions, Fuss and Gaffney have helped to make their assertive strategy work for a lot of investors over the long term. And a recent visit to Loomis Sayles' offices helped to confirm our opinion of the firm's commitment to providing the managers with topnotch research. As an aside, Fuss was our first Fixed-Income Manager of the Year back in 1995. (Gaffney joined him as a comanager here in 1997.)
Jeffrey Gundlach and Philip Barach
TCW Total Return Bond
The fund is no one-hit wonder, though. By identifying undervalued mortgages and by strategically employing inverse floating-rate securities, principal-only issues, and other such nontraditional fare, Gundlach and Barach have built a solid long-term record that ranks among the elite in the intermediate-bond category. And the fund's low expense ratio makes their expertise a bargain.
Ken Leech and Team
Western Asset Core Bond
Earlier in 2006, it did not appear that Leech and Western had much of a chance of appearing in this article. One reason is that the firm had believed that the Fed would stop raising rates much earlier than it did and had positioned the fund accordingly. Once rates stopped going up, though, the fund was in good shape to rally, and it did. Further, it has been helped by some good bond selection in the investment-grade corporate space and an overweight in mortgages. The fund has topped more than 95% of its category peers so far in 2006.
Eaton Vance National Municipals
Fidelity Advisor High Income Advantage
His success with Advisor High Income Advantage is most notable, as it is there that he has had the most short- and long-term success. The fund got hit by a few holding-specific problems in 2006, but the strong performance of its auto and cable holdings have helped erase any missteps. If the high-yield market cools, we'd expect this fund to come back to the pack, but Soviero's skilled issue selection should continue to work in its favor over the long term.