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Fund Spy

Morningstar Fund Spy

Manager of the Year: Your Votes
In my last column, I invited readers to nominate their favorite fund managers for Morningstar's annual Manager of the Year award. Three serious contenders emerged.

Neal Miller of Fidelity New Millennium FMILX: The closed fund was up 36% through the end of August, outpacing the S&P 500 and its mid-cap growth category by more than 24 percentage points each. And this performance isn't some fluke. The fund's returns have landed in its category's top third every year since 1993. The fund is highly tax efficient, and expenses are modest.

Miller invests in trends that he believes are vastly underestimated, and he has a knack for spotting them early. "I remember reading about his investments in the Y2K problem before it became a cultural obsession," says a Morningstar.com reader who nominated Miller. Morningstar funds editor Russel Kinnel says that Miller was one of the first managers to invest in Internet-related businesses in early 1995.

Miller plays trends through a variety of industries. For example, he plays the Internet theme not only through Net stocks, but with exposure to media stocks, semiconductor makers, and communications equipment.

Richard Lawson of Weitz Hickory WEHIX: This closed small-blend fund was up 16.6% through August, beating the average fund in its category by 11 percentage point and the S&P 500 by eight percentage points. But that's nothing new. The fund has outperformed the index every year since 1995, which is remarkable when you consider the bear market small-cap stocks endured during much of that time. The fund landed in the top 15% of its category during that time, too, and has regularly walloped the small-cap-focused Russell 2000.

Credit Lawson's keen stock-picker's eye. He wants companies that are generating strong cash flows, and he likes 'em cheap. Earlier this decade, he invested the majority of the fund's assets in bargain-priced telecommunications and cable stocks. Today, the portfolio has a little more variety, including recent purchases such as Consolidated Stores CNS and Harrah's Entertainment HET.

The team at Vanguard Primecap VPMCX and Vanguard Capital Opportunity VHCOX: Primecap is having another terrific year. Its 21% return through August surpasses the S&P 500 and the average large-cap blend fund by double-digit amounts. Capital Opportunity, which the team took over in February 1998, is up nearly 42%, trouncing the S&P 500 and the average mid-cap growth fund by about roughly 30 percentage points apiece.

That's par for the course for this team. Primecap has beaten the S&P 500 over the trailing three-, five-, and 10-year periods. Not an easy benchmark to beat. Led by Howard Schow and Theo Kolokotrones, the team loads up on inexpensive stocks in out-of-favor industries. Schow, Kolokotrones, and company take the same approach with Capital Opportunity, except they favor small and midsize firms there.

One Head is Better Than Two
Strong Opportunity SOPFX made a name for itself in the early 1990s when Dick Strong lured then-dynamic duo Dick Weiss and Carlene Murphy Ziegler away from Stein Roe to manage this fund. Investors were concerned five years ago when Ziegler left to start Artisan Funds, and Marina Carlson took her place on the fund. Late last year, Carlson left Weiss' side to manage another fund, and Carlson left Strong entirely earlier this year. (Guess where she ended up? Ziegler's company, of course.)

Weiss has taken these changes in stride. Sure, the fund has had some rough patches, landing in the mid-cap value category's bottom half from 1995 to 1997. But it finished 1998 in its category's top 4% and is doing just as well on a relative basis this year. Even better, the fund's trailing three-, five-, and 10-year returns land in the mid-cap value category's top 15%.

Meanwhile, how have Carlson and Ziegler fared? It's too soon to judge Carlson. But Ziegler's Artisan Small Cap ARTSX hasn't been all that remarkable. It has finished in the bottom 30% of the small-blend category every year since its start.

The upshot: Sometimes there's only one real engine behind a dynamic duo. Strong Opportunity's shareholders are lucky that Weiss is the one who stayed behind.

Fallen Heroes
I was inundated with letters and magazine articles about Safeco Growth No Load SAFGX a few years back. The fund had earned a 5-star Morningstar rating, was one of the best performers for every conceivable performance period, and was flooded with new assets. Today, it's a 2-star fund sitting on a 12% year-to-date loss through August, and people in our Conversations area are asking, "Should I sell this NOW???"

Okay, this hasn't been one of the fund's better years. Small-company stocks revived, but a few big blowups (Family Golf Centers FGCI and Serologicals SERO, to name just two) sabotaged this fund's returns.

There's no reason to assume manager Tom Maguire has turned into an idiot overnight, though. In fact, Morningstar funds analyst Emily Hall reports in her latest analysis that Maguire still likes many of his blowups because their fundamentals are intact.

As far as I can tell, there's little reason to sell this fund--unless, of course, you're a style purist. Maguire buys stocks along the market-cap spectrum. The portfolio has included everything from obscure micro-caps to Philip Morris MO. Expect the fund to bounce around the Morningstar style box.

Stat du Jour
Number of years Safeco Growth has landed in the top third of the small-blend category since Maguire took over: five out of 10.

Number of years it has landed in the bottom third of its category: two out of 10.

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