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Our Five Nominees for Domestic-Stock Manager of the Year 2011

These managers boast a good year and a great long-term record.

Russell Kinnel, 12/15/2011

It's been another challenging year for stock fund managers. The markets are just slightly in the red, so generating just about any kind of decent positive return takes some work. Our five nominees for Domestic-Stock Manager of the Year have done an outstanding job not just this year but over the long haul to produce strong returns for shareholders.

As you probably know by now, we look for managers who have had a great year and earned strong long-term results for shareholders. They also have to be strong stewards who put fundholders first. We'll announce the winner the first week in January. Here then are the nominees:

Bob Goldfarb and David Poppe--Sequoia Fund SEQUX
Last year's Manager of the Year winners have provided quite a follow-up. This year they are up 10.7%--placing them in the top percentile of large blend. Although some have written off Sequoia's great returns over the years as just due to its Berkshire Hathaway BRK.A holding, Berkshire shares are down about 6% this year. Rather, it's the fund's other top holdings that are rocking: Valeant Pharmaceuticals VRX, TJX Companies TJX, and Fastenal FAST are up more than 30% each this year. The managers' patient strategy of buying great companies at fair prices is clearly influenced by Buffett, but the portfolio is much more than piggybacking on Buffett. Look out over the trailing five-, 10-, and 15-year periods--this fund is in the top 5% of large blend and at least 300 basis points per annum ahead of the S&P 500 thanks to Goldfarb, Poppe, and firm founders Ruane and Cuniff.

Bill Nygren--Oakmark Select OAKLX and Oakmark OAKMX
Bill Nygren last won the award in 2001, and he continues to be an adept stock-picker. He is ably assisted by comanager Henry Berghoef at Select and Kevin Grant at Oakmark fund. Nygren uses private market purchases to gauge a company's fair value, and he will patiently wait for the market to see it his way. At Select he makes concentrated bets where top holdings lately have been just under 10% of assets, but at Oakmark he runs a more diverse portfolio with nothing over 3% of assets. While the two funds diverge a bit in yearly performance they have been pretty close over the long haul. In fact, both funds have upside capture ratios over 100%, but Oakmark Select's downside capture ratio of 81% is higher than Oakmark's 74%. What that means is his funds have outperformed in up and down markets though mostly by losing less in down markets. This year, MasterCard MA and Bristol-Myers Squibb BMY have been big winners for both funds. Overall, Select is up 3% this year and Oakmark is flat.

Don and Stephen Yacktman--Yacktman YACKX and Yacktman Focused YAFFX
Don Yacktman last won our award 20 years ago when he was running Selected American SLASX. Pull up Yacktman Fund's performance, and you'll see that it is in the top 1% of its category for the past three-, five-, 10-, and 15-year periods. This year it's up 4.6%, which lands it in the top 6%. Yacktman Focused doesn't have a 15-year record, but it likewise is in the top percentile for the trailing three-, five-, and 10-year periods. Focused is up 6% this year. The Yacktmans apply a deeper value strategy than the two funds above, but they've done a brilliant job of avoiding too much exposure to the economy or the myriad value traps that have knocked other deep-value funds for a loop. Wariness of debt and economic weakness alike have helped to steer them in the right direction. This year, News Corp NWSA has worked well despite the awful phone-tapping scandal. Pfizer PFE and H&R Block HRB have also worked nicely. More recently they have nibbled on some fallen tech stocks such as Cisco Systems CSCO. While Yacktman does have a blemish from market-timing, the funds have certainly made it up to shareholders who stuck with them.

Scott Satterwhite and James Kieffer--Artisan Mid Cap Value ARTQX, Artisan Small Cap Value ARTVX, Artisan Value ARTLX
Satterwhite and Kieffer have built quite a record. They started at Wachovia in the late 1980s where they produced strong performance and then joined Artisan where they launched Small Cap Value in 1997. Mid Cap Value followed in 2001 and Value (their only fund that's still open to new investors) in 2006. George Sertl was named a comanager on the funds in 2006. What stands out across those funds and over all that time is the consistency of approach. A little like Nygren, they also look for stocks trading at steep discounts to their private-market values. They also look for strong cash generators with little debt. Unlike Nygren, they won't go above 5% weightings in their top names. Through all kinds of markets, returns have been strong. For example, Mid Cap Value was top-third for its group in both 2008 and 2009--a real rarity given the market's dramatic reversal. This year, Value is up 4%, Mid Cap Value is up 4%, and Small Cap Value is down 5%. The first two are top-decile for their categories, and Small Cap Value is top-third in a tough year for small-value. Management showed strong stewardship in closing Small Cap Value and Mid Cap Value before assets hindered their process. You can see that in their cumulative returns. Small Cap Value has gained 290% versus 95% for its benchmark since its 1997 inception. Mid Cap Value has gained 190% versus 105% since its 2001 inception.

Pat English and Andy Ramer--FMI Large CapĀ FMIHX and FMI Common Stock FMIMX
English, Ramer, and the team at FMI have guided both funds to top-quintile returns this year and over the trailing five-year periods. Common also has top-decile 10-year returns; Large Cap was launched in 2001 and is just shy of a 10-year record. Management looks for companies with strong returns on invested capital where shares are trading at modest levels on metrics like P/E and price/cash flow. Like the Artisan managers, they closed Common Stock at a modest asset level. Like Yacktman, they've managed to be focused while still keeping a lid on risk. At Common Stock, the upside capture ratio is 87% and downside is 80%. For Large Cap, upside capture is 95% and downside is 77%.


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