Our Runners Up for Manager of the Year
TCW, UMB, and Dodge & Cox went above and beyond in 2005.
Man, it was a tough call this year. There were quite a few managers who went above and beyond to deliver great results over the long haul and in 2005. Thus, we want to recognize our runners up for the Manager of the Year awards. To see who won this year's awards, click here.
Domestic-Stock Manager of the Year Runners Up
Dodge & Cox Team, Dodge & Cox Stock (DODGX)
Let's briefly review what Dodge & Cox has accomplished. In 2005, the fund returned 9.4%--that's 3.5 percentage points better than the typical large-value fund. Over the trailing 10 years, the fund has returned a breathtaking 14.6% annualized, and the trailing 15-year figure is an annualized 15.5%. In both cases, only one fund among the hundreds of large-value funds topped it. When you consider that the fund had already had billions to manage 15 years ago, those returns are absolutely remarkable.
Now, let's consider how this team could have accomplished that feat. Dodge & Cox has built a strong corporate culture that encourages analysts and managers to stay at the firm for the duration of their careers. The shop is structured as a partnership in which incoming hires buy shares at a set multiple and sell them back upon departing. Thus, the transition between generations is smooth, and the firm has been able to remain independent, avoiding the types of mergers that have sunk so many good fund firms. That means that investment professionals are leaving money on the table when they depart, but it ensures that the firm continues to do the right thing for investors.
Consider, too, that the firm has always charged modest expense ratios, closed funds before they get too big, avoided chasing Internet stocks even though that meant business went to competitors (for a while), and created only four mutual funds in its 75-year history.
Dodge & Cox generally hires its analysts out of business school, preferring not to hire folks with industry experience because the firm considers it too hard to alter their way of thinking. (There are some notable exceptions, however.) Further, each person on the investment policy committee, which is responsible for buy and sell decisions, began as an analyst. Interestingly, the equity analysts are required to do credit research, and the firm’s equity operations are set up on a global sector basis, so analysts pick stocks for the domestic and international portfolios, as well as credits for the fixed-income portfolios. This helps to give them a broader perspective and no doubt helped the fund steer clear of many of the highly leveraged blowups that hit in the bear market.
Fixed-Income Manager of the Year Runner Up
Jeffrey Gundlach, TCW Galileo Total Return Bond (TGLMX)
This unusual fund has produced striking results. It's a mortgage portfolio, but it competes head to head with more diversified funds that own corporate issues, asset-backed securities, and a variety of other bond sectors. Jeffrey Gundlach argues that mortgage securities offer superior returns and less risk, and the fund's results support those claims.
In 2005, Gundlach focused his attention on discount mortgages in an effort to protect the fund from duration extension, a situation where mortgages become increasingly interest-rate-sensitive as rates move higher. Duration extension refers to the nasty side of mortgages, which is that they get refinanced when rates are low and last longer when rates rise. Thus, a mortgage-debt holder ends up with greater interest-rate exposure at just the wrong time. Gundlach's efforts have placed the fund near the top of the charts this year and have limited its overall volatility in what has been a somewhat choppy market.
What's more, the fund charges a mere 0.44% in expenses. With bond yields at pretty skimpy levels, it's crucial that funds give investors a good deal on costs, and this one does.
While Gundlach isn't a household name, pension funds and other big institutional clients have been beating a path to his door for years. It's time that more individual investors found out what they were missing.International-Stock Manager of the Year Runner Up
However, Moffett has the advantage of focus in running a fund with less than $2 billion. In short, he doesn't need to research 600 stocks. He has about 80 in the portfolio, and that's pretty manageable.
Moffett's strategy is fairly common in the foreign-stock world. He combines top-down country and sector analysis with bottom-up stock selection. He looks for positive macroeconomic trends to determine country weightings. He favors firms with good balance sheets and stable long-term growth potential, and prefers market leaders that can benefit from demographic trends.
What sets Moffett apart is his execution of that strategy. Since the fund's inception, it has returned 10.81% annualized compared with 7.08% for the average foreign large-blend fund. Its 10-year returns of 10.9% are right in line with those of American Funds EuroPacific Growth (AEPGX), yet it has attracted only one 30th of the assets.
Your Picks for Manager of the Year
As you may recall, we polled readers on their picks for Manager of the Year. Your choices weren't quite in sync with ours, but they were fine picks nonetheless. Here's how you voted:
Reader Votes for International-Stock Manager of the Year
59% - Rob Gensler, T. Rowe Price Global Stock
31% - James Moffett, UMB Scout WorldWide
10% - The team at ICAP International
Reader Votes for Fixed-Income Manager of the Year
51% - Rivelle, Lippmann, Landmann, and Kane, Metropolitan West Total Return
42% - Tom Metzold, Eaton Vance National Municipals
5% - Jeffrey Gundlach, TCW Galileo Total Return Bond
2% - John Miller, Nuveen High Yield Municipal Bond
Reader Votes for Domestic-Stock Manager of the Year
62% - The team at Dodge & Cox Stock
13% - Chris Davis and Ken Feinberg, Selected American
12% - Bruce Berkowitz, Fairholme Fund
9% - Sig Segalas, Harbor Capital Appreciation
4% - Rob Lyon, ICAP Select Equity
Russel Kinnel does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.