In a competitive 2012, a few new contenders stand out alongside a couple of tried-and-true names.
In 2012, the bond-market spoils generally have gone to managers who were willing to take risk, particularly credit and nondollar risk. High-yield and emerging-market bond benchmarks have returned between 13% and 18% so far this year, for instance. Meanwhile, a host of currencies in Asia, Latin America, and Eastern Europe appreciated against the greenback.
None of these areas is represented in the widely followed Barclays U.S. Aggregate Bond Index, which is up a relatively modest 4%. Morningstar's Eric Jacobson previously noted that many funds in the intermediate-term bond category have increasingly ventured beyond their U.S. government-heavy benchmark, so it's not surprising to see more than 80% of the category beat the index in 2012. What has worked for funds in 2012 didn't work in 2011, though, when more than 80% of the category lagged the Aggregate Bond Index.
Impressively, some of our 2012 nominees managed to outperform in both of these opposing environments, while others had the discipline to stick to their bets, as well as the conviction to add to them when the going got tough. Although a strong showing in 2012 is an important criterion in selecting our nominees, we also want to recognize managers who have delivered superior long-term returns with sound strategies that continue to earn our analysts' confidence.
The Fund Manager of the Year nominees for the Alternatives and Allocation categories will be revealed on Tuesday, Dec. 18, and Wednesday, Dec. 19, respectively. All of the winners will be announced in the first week of January.
This year's nominees for Fixed-Income Fund Manager of the Year are:
Steve Smith, David Hoffman, Brian Hess, and Jack McIntyre,
Legg Mason Brandywine Global Opportunities Bond GOBIX
Year-to-Date Return Through Dec. 13, 2012: 12.2%
Category Rank (Percentile): 11
This world-bond fund has only been around for six years, but the team at Brandywine Global has been exercising its path-breaking brand of global fixed-income investing since the mid-1990s, amassing more than $30 billion in fixed-income assets under management over the years across strategies and accounts. The managers argue that following traditional global-bond benchmarks that skew toward the most heavily indebted nations is a dangerous way to go, so they don't pay them any mind when constructing the fund's portfolio.
The team has delivered several outstanding years in a row. In 2011, the managers' concern about the impact of high oil prices on the developed world’s consumers led them to take some defensive steps, such as adding exposure to long U.S. Treasuries. Finding the climate more conducive for risk-taking in 2012, the fund has benefited from purchases in the battered U.S. bank corporate bond sector late last year, growing exposure to Mexico, and a stake in controversial Hungary's bonds and currency, among other factors. The managers' contrarian-flavored approach has caused some bumps along the way, but for those with the fortitude to see it through, the ride has been rewarding.
Peter Palfrey and Rick Raczkowski, Loomis Sayles Core Plus Bond NEFRX
Year-to-Date Return Through Dec. 13, 2012: 11.1%
Category Rank (Percentile): 7
Dan Fuss and team at Loomis Sayles Bond LSBRX may get all the limelight, but Peter Palfrey and Rick Raczkowski have quietly assembled an excellent long-term record here over the years. While they don't court as much controversy in the fund's corporate stake as their fund's better-known sibling, they do pull more levers than the typical intermediate-term bond fund, often holding sizable stakes in junk corporate and nondollar bonds. Last year, their nondollar bets, which included shorting the euro, and a timely shift into 30-year U.S. Treasuries kept them ahead of their benchmark and more than 90% of their peers. After shifting gears in late 2011 and 2012, the fund has since gotten a boost from the team's corporate bargain-hunting, including a growing stake in emerging-market corporates, as well as tactical exposure to the Mexican peso.