Standing out in a good year for stocks.
Sometimes, a rising tide that lifts all boats can make it difficult to stand out. It has been relatively easier to make money in U.S. stocks in 2012 than it was in 2011: Morningstar’s nine diversified domestic-equity categories have each rung up double-digit gains for the year to date through Dec. 10. And aside from a 6% dip in May, it has been fairly smooth sailing throughout the year.
This year's nominees for Morningstar Domestic-Stock Fund Manager of the Year have nevertheless made their mark in 2012 as well as over the long haul. As always, we looked for managers who have not just delivered great results but also have been strong stewards who put fundholders first. The nominees for International-Stock Fund Manager of the Year will be revealed on Friday, Dec. 14, and the Fixed-Income Fund Manager of the Year nominees will be posted on Monday, Dec. 17. We’re also introducing two new Manager of the Year awards for the growing Alternatives and Allocation categories; those nominees will be announced on Tuesday, Dec. 18 and Wednesday, Dec. 19, respectively. Finally, we'll announce all the winners in the first week of January.
Here are the domestic-equity nominees:
Team From American Funds New Economy ANEFX
Year-to-Date Return Through Dec. 10, 2012: 21.3%
Category Rank (Percentile): 3
This large-growth fund has long boasted a strong manager lineup: Timothy Armour, Gordon Crawford, Mark Denning, Claudia Huntington, and Harold La have been among the managers who independently run separate pieces of this fund for an average of 14 years. Denning is also part of the American Funds EuroPacific Growth AEPGX team that won the International-Stock Fund Manager of the Year award three years ago.
A late 2009 prospectus change gave the managers flexibility that contributed to a very impressive 2012. The fund previously had to invest 75% of its assets in services and information companies but now can invest in any company benefiting from or creating innovation. This broader mandate has allowed the managers to trim a once-outsized tech weighting and gave them room to build larger stakes in health-care and consumer cyclicals firms. All these moves boosted the fund’s returns in 2012, as did lighter-than-usual weightings in energy and materials--the fund typically has an underweighting in these sectors, but the managers were particularly wary of them coming into 2012.
But plain old broad-based stock-picking drove returns as well. The fund overcame headwinds. Large-cap stocks have generally beaten small caps in the United States, and this all-cap fund has a larger helping of mid- and small-cap stocks. Through Dec. 10, domestic stocks also had beaten international equities. This fund has nearly a third of its assets overseas and found winners across the globe such as Hong Kong-based casino conglomerate Galaxy Entertainment, Samsung of Korea, drugmaker Grifols of Spain, Hong Kong-based insurer AIA Holdings, and logistics firm PT AKR Coporindo of Indonesia.
The fund also has an excellent long-term record, besting 90% of its large-growth rivals as well as the all-cap Russell 3000 Growth Index over the past decade. Since Denning joined the fund in February 2002 (La is the only one of the five managers to join the fund after that date), a $10,000 investment in the fund has grown to $18,910 compared with $13,650 for its typical peer and $15,290 for the Russell 3000 Growth Index. Although veteran growth investor Crawford is retiring at the end of 2012, the fund should be in fine shape with the rest of its veteran team handling its $7.8 billion asset base. The firm also has a long history of handling manager transitions well and grooming in-house talent.
Timothy Hartch and Michael Keller, BBH Core Select BBTEX
Year-to-Date Return Through Dec. 10, 2012: 18.9%
Category Rank (Percentile): 5
This large-blend fund is far from a household name, but it is distinctive. Managers Timothy Hartch and Michael Keller set this fund apart in several ways: They run a concentrated portfolio of roughly 30 stocks, ignore the sector and individual stock weightings of the fund’s S&P 500 benchmark, and focus heavily on downside protection.