The Fund Manager of the Decade Finalists

Remember the Prince song: "We're gonna party like it's 1999"? Well, securities markets did back then, and 10 years later we're still suffering from the hangover.

Bond funds were a bright spot over the past 10 years, but it was a brutal time for equity investors. Not one, but two severe bear markets lasting roughly two years each decimated investment accounts. As we near the decade's end, broad equity market indexes show flat to negative returns for the entire 10-year stretch.

Stringing together a good record in that environment was a challenge as markets flip-flopped between rewarding and punishing excessive risk-taking. Of all domestic-equity funds, for example, barely a third have positive 10-year returns. The rest haven't been around that long or lost money. The managers listed below, however, excelled in this difficult environment by relying on their own blend of original research, making capital preservation a priority and sticking with their approaches in good times and bad.

The Award
The Manager of the Decade award is not just about returns. We consider the risks assumed to achieve those results and take into account the strength of the manager, strategy, and firm's stewardship. We also think it's a greater feat to make a lot of money for a lot of people than to earn sky-high returns on a tiny pool of assets, so asset size factors in. Our team of fund analysts is spending much of November and December researching the nominees and debating the merits of each for this award.

We've narrowed the field to five nominees for each award: domestic, foreign, and fixed income. We should point out, however, this is not a list of names for the next decade. Though we wouldn't be surprised to see these managers continue to shine, this award is specifically focused on 2000-09.

Though we previously indicated we would announce the winners in early December, we're going to wait until the decade comes to a close before making a final decision. We'll announce the winners on Morningstar.com in mid-January soon after we release the winners of the Fund Managers of Year for 2009.

Manager Name Assets ($ Bil) Annualized Return 1/1/00 - 11/16/09 Morningstar Rating Domestic:         Bruce Berkowitz Fairholme (FAIRX) 10.0 13.02 5 Charlie Dreifus Royce Special Equity Invmt (RYSEX) 1.0 11.98 5 Don Yacktman Yacktman (YACKX) 1.1 11.97 5 Joel Tillinghast Fidelity Low-Priced Stock (FLPSX) 25.5 11.05 4 Steve Romick FPA Crescent (FPACX) 2.3 10.75 5   Wilshire 5000 Total Mkt   -0.39   Foreign:         Jean-Marie Eveillard First Eagle Global A (SGENX) 19.1 12.50 4 David Herro Oakmark Intl Small Cap I (OAKEX) 0.8 10.49 3   Oakmark International I (OAKIX) 4.2 8.34 5 Dennis Stattman BlackRock Global Allocation (MDLOX) 33.1 8.75 4 The Team Manning & Napier World Opp 4.2 8.61 5 The Team American Funds EuroPacific Gr (AEPGX) 93.7 3.96 4   MSCI EAFE   -0.88   Fixed Income:         Dan Fuss Loomis Sayles Bond Retail (LSBRX) 18.4 8.63 3 Kathleen Gaffney Jeffrey Gundlach TCW Total Return Bond I (TGLMX) 11.2 7.97 5 Bill Gross PIMCO Total Return (PTTRX) 192.6 7.79 5 The Team Dodge & Cox Income (DODIX) 18.5 6.85 4 Christine Thompson Fidelity Municipal Income (FHIGX) 5.5 5.68 5   Fidelity Advisor Municipal Inc 1.1 5.44 3   BarCap US Aggregate Bond   6.52  

Domestic
Earning more than 10% annualized since the start of the decade is a remarkable feat given that equity markets were flat, but our group of nominees pulled it off. The odds seemed stacked against Fidelity manager Joel Tillinghast who kicked off the decade with one of the largest small-cap funds around and a portfolio of more than 700 stocks. That's not the profile you may expect from a fund that went on to knock the socks off the competition. Tillinghast's style isn't easily defined, but it leans toward value and allows his investing acumen to run free.

Charlie Dreifus and Don Yacktman both run strategies inspired by the Ben Graham school of value investing, and they aren't afraid to park money in cash when good values are scarce. Dreifus, who hunts for small-cap companies, got ahead this decade by avoiding big losses with his laserlike focus on balance sheets and valuations. Yacktman has been a consistent and adept investor whose stock picks have put him head and shoulders above peers, not only in this decade, but throughout his 17-year tenure on the fund. Both investors are prone to dry spells relative to their peers, but patience with their strategies has paid off.

Steve Romick's modus operandi included avoiding losses and being willing to sit on cash, too. With an average cash position in the 30% range over the decade (a portion of which was held as collateral for the fund's short equity positions), Romick showcased admirable moderation by hanging back when he couldn't find the right opportunities at the right price and looking not only at a company's equity, but across the capital structure. The part of Romick's portfolio not sitting idle made its way into an array of high-yield fare as well as energy and consumer services companies, which paid off handsomely.

All of our nominees have been well-known for some time, but it wasn't until this decade that Bruce Berkowitz truly made a name for himself. He is just now closing in on his 10-year record at  Fairholme Fund (FAIRX), which blossomed from a few million in assets initially to nearly $10 billion recently. Berkowitz focuses on free cash flows and has a deep knowledge of the businesses he owns and the management teams running them: a strategy pursued by many, but unrivaled by most.

Foreign
David Herro, Jean-Marie Eveillard, and the EuroPacific team have all won the Manager of the Year award in the past, but Dennis Stattman of  BlackRock Global Allocation (MDLOX) and the team at  Manning & Napier World Opportunities  put forth a solid long-term record without attracting a lot of attention in any given year.

Stattman shops globally across asset classes. Such an expansive universe exposes the fund to more opportunities to succeed as well as to fail. Stattman's bets are bold but are usually well-placed. Eveillard also has a wide and flexible mandate that he's employed masterfully. Sure, Eveillard was in and out of retirement for a significant portion of the decade, but it was his picks, process, portfolio, and handpicked successors that prevailed. Few investors have been as on the mark with their bottom-up and top-down views as Eveillard, whose general caution has been rewarded handsomely.

 American Funds EuroPacific Growth (AEPGX) is last on our list from a returns standpoint, but it has still served its purpose as a reliable core international holding for millions of investors. Rising assets didn't slow it down and didn't force it to become indexlike. The fund outperformed in both of the decade's bear markets and also outperformed during the 2003-07 bull market. Oakmark's David Herro has showcased similar all-weather abilities. He has made his way onto this list looking for stocks that are trading well below his estimate of their value. His portfolios don't look anything like the benchmark and are often spiced up with a healthy dose of emerging-markets exposure.

The Manning & Napier team is the real hidden gem on this list. The team brings a unique and attractive focus on absolute returns to research companies of all sizes around the globe. The results speak for themselves, not only in World Opportunities, but across Manning & Napier's entire lineup.

Fixed Income
All five fixed-income nominees have received Morningstar's Fund Manager of the Year award in the past. Bill Gross has won it three times (1998, 2000, and 2007). Over the many years since PIMCO's founding, Gross has successfully led an evolution of the firm and the fund as both grew exponentially. At $192 billion,  PIMCO Total Return (PTTRX) is now the largest mutual fund. Gross is well known for the macroeconomic viewpoints that influence the fund. He's injected those views into the portfolios with more than just interest-rate bets. More of the value has come through sector selection and yield-curve positioning over the years.

Dan Fuss and Kathleen Gaffney of  Loomis Sayles Bond (LSBRX) bring a contrarian, value bent to fixed-income markets with a bold go-anywhere style that has landed the fund in the U.S. high-yield arena, New Zealand bonds, and just about everything in between. That has made Loomis Sayles Bond the most volatile, but also highest returning option, among the nominees. Jeffrey Gundlach made his mark by showing off his skill in the mortgage-backed securities arena. Gundlach was sounding alarms about the lurking dangers in subprime well before it became a household word, and he did a phenomenal job steering the portfolio through the mortgage bond market's morass in recent years. The Dodge & Cox team manages bond money the old fashioned way, with meticulous research on borrowers, and careful selection of individual bonds. Finally, Fidelity's municipal bond team is several cuts above the competition and it shows in the results of Fidelity's full suite of municipal offerings. Though the Fidelity municipal funds lag the other nominees on straight total returns, they've been very competitive on a tax-equivalent basis.

A previous version of this article inadvertently omitted Kathleen Gaffney's name from the nomination.