10 of the Best Mutual Fund Managers Around

At Morningstar, we focus most of our efforts on figuring out which funds have the best prospects for the next 10 years or longer. After all, what everyone wants is funds that will outperform and get them to their goals. The culmination of that effort is our  Fund Analyst Picks list.

Today I aim to go in a different direction in order to recognize some of the very best domestic-stock fund managers who have served investors well over the years. Not all are Fund Analyst Picks because their funds may be too bloated, their expenses too high, or there could be some other reason. In short, below are 10 of the best managers. I wrote 10 of the best rather than the 10 best because there are other great managers I just couldn't fit in, and, after all, this is just my opinion--each of my colleagues would come up with a slightly different list.

I looked for managers who produced an outstanding return and employed a creative, original strategy in a way that would benefit a lot of investors by avoiding extreme volatility and producing strong returns even after assets swelled.

Beyond those subjective rules I also required that the manager must still be running a fund, must have at least 10 years' tenure at that fund, must run a domestic-stock fund from one of our nine Morningstar Style Box categories, and must be a solo manager or part of a small team so that I can safely assume he was a big part of the fund's success. The team rule means good managers from big team efforts like Dodge & Cox, some Vanguard funds, and American didn't qualify. Finally, to make the final cut, I favored managers with longer track records.

Finally, note that I'm not trying to rank my 10 managers. It's tough enough to cut the list to 10 without pretending that I can really separate number five from number six. So, lest anyone infer a ranking from the order below, I put them in alphabetical order by ticker.

Will Danoff
There's no doubting that Will Danoff was schooled in the ways of Fidelity legend Peter Lynch. At  Fidelity Contrafund (FCNTX), Danoff has proved to be a remarkably adept investor. He takes a flexible approach to growth investing. He's constantly shifting to areas where prospects are brighter than most investors believe. That's a little different from a momentum manager who chases what's already gone up. Danoff aims to get in before a sector has gone up. Over the past 15 years, Danoff has produced returns of 572% compared with 363% for the S&P 500.

Joel Tillinghast
Tillinghast is also a flexible investor, but he has a small-cap value bent at  Fidelity Low-Priced Stock (FLPSX). Like Danoff, part of Tillinghast's achievement is that he managed to keep producing great returns even though the fund became quite big. The fund is way too big now, but it is absolutely remarkable what Tillinghast has done over time. He's had to own hundreds of names--the fund is up to 700 today--yet he's still beaten most any index and peer group you can find. One thing Fidelity has been good at is bringing along investing junkies like Tillinghast who thrive when they are allowed to just pick stocks rather than doing roadshows or other marketing efforts, which at some companies are considered just as important as managing portfolios.

Bob Rodriguez
Over the past 15 years no small-value manager has bested Bob Rodriguez's 17% annualized return at  FPA Capital . Yet Rodriquez has done that while putting safety first and returns second. He's a picky investor. He wants companies with strong cash flow, dominant market position, and healthy balance sheets, and their stocks have to be trading cheaply. If he can't find enough stocks that make the grade, he'll close the fund and raise cash in order to protect investors' principal. The fund's long-term record shows he hasn't had to sacrifice returns to do that.

Saul Pannell
His name isn't as famous as some, but you better believe investors have found him. Pannell's outstanding eclectic style has produced huge returns and made  Hartford Capital Appreciation (ITHAX) a $24 billion giant.

You can't really rule out any sector or market cap for Pannell, although asset bloat has meant small caps are much less important to this fund than they once were. Pannell, of Wellington Asset Management, blends macroeconomic work with bottom-up selection to find the next winners. Like Danoff, he's all over the map. His most recent portfolio boasts a hefty foreign stake and big bets on tech and cyclicals. What matters is that with the help of Wellington's analysts, he's found winners of all stripes. The mutual fund has returned 469% to the Wilshire 5000's 148% since its 1996 inception.

Mason Hawkins and G. Staley Cates
Like Bob Rodriguez, Mason Hawkins and G. Staley Cates of  Longleaf Partners (LLPFX) and  Longleaf Partners Small-Cap (LLSCX) are picky investors who will close funds and raise cash when they can't find stocks with a sufficient margin of safety. All of Longleaf's funds look for stocks trading at a discount to intrinsic value of at least 40%. Longleaf Partners is run in a very concentrated fashion with no regard for benchmarks or investing fashion. The goal is simply to deliver strong long-term results with modest long-term risk. And they've done a nice job: past 15-year returns of 712%.

Bill Miller
This is a good time to recognize Bill Miller's work at  Legg Mason Value (LMVTX) because, given how poorly the fund is performing this year, no one can say I'm jumping on the bandwagon. Over time Warren Buffett and some of the fund managers like Chris Davis who emulate him have adapted their view of value investing to look beyond the dirt cheap to find great companies trading at modest prices. Bill Miller has gone a step beyond them, though, to buy fast-growing companies provided that he thinks they're trading cheaply relative to where they can grow five years from now. The key is that Miller is willing to plug in bigger growth rates so that  Google (GOOG) and  Amazon.com (AMZN) can look like bargains to him. Miller believes that growth and value picks like  Tyco International  and  Aetna  are worth the controversy and angry shareholder letters they entail. Those are the sort of stocks that scare less secure managers because if they do blow up you look stupid. By contrast Miller not only holds on but he'll add on the way down--a move that usually leads to a nifty return. Miller also stays one step ahead by keeping an open mind to big shifts in technology and business. Sure, the streak is likely to come to an end, but Miller's long-term record is still one of the best.

Brian Rogers
Brian Rogers' strategy at  T. Rowe Price Equity Income (PRFDX) isn't as bold or exciting as most of the managers on this list. But let's give steady performers their due. Rogers holds a diversified income-oriented portfolio that delivers pleasing performance year in and year out. As a result, the typical investor actually enjoys returns similar to the funds' officially stated returns. The fund never inspires fear or greed, so investors are able to hold on for the long haul. Rogers has executed that strategy quite well as he's often ahead of the curve and sells before trouble erupts.

Richie Freeman
If you didn't know much about  Legg Mason Partners Aggressive Growth (SHRAX), you might make the mistake of assuming that Richie Freeman works closely with Bill Miller. In fact, Richie Freeman and the fund are quite new to Legg Mason. When Legg Mason acquired Citigroup's asset-management wing, this fund changed its name from Smith Barney to Legg Mason Partners. While Freeman does share Miller's focus on the long term and aversion to turnover, they haven't worked together. It's interesting, though, what happens when you buy a stock with the assumption that you'll hold it for 20 years or so. Freeman by necessity avoids flash-in-the-pan technologies to aim for companies with strong long-term sustainable advantages. That kept him away from lots of the overpriced trendy dot-coms, and it also led this fund to great returns. Over the past 15 years, this fund is up 598% to the large-growth average return of 261%.

Marty Whitman
Marty Whitman is a thoughtful investor who loves to challenge the conventional wisdom. His shareholder letters for  Third Avenue Value (TAVFX) are maybe the best around as he spends pages explaining his thinking on a new position. Like Miller, he's creative and a lover of controversy, but he's closer to Bob Rodriguez when it comes to his emphasis on margin of safety. To get a lot of safety, Whitman is accustomed to buying when an industry is at its worst. It seems simple to say that with cyclical industries you should buy when the near term is awful but the long term is solid so that the stocks can't go much lower. In practice, it takes a lot of nerve and, more importantly, a lot of research to make sure you aren't buying a company two weeks before it files for bankruptcy. And Whitman is up to the challenge.

Howard Schow, Theo Kolokotrones, and Joel Fried
This trio just made it under my small-team cutoff but, wow, are they great investors. They simply outresearch other managers and outinvest by employing a slightly contrarian approach to growth investing. Over the past 15 years  Vanguard Primecap (VPMCX) has gained 678%.

Who'd I Miss?
Using the parameters I spelled out, let me know who you think should be added to this list. If you make a good case, I'll quote you in my column on Oct. 31.