Active Fund Managers That Rise to the Top

Even at a time when index-based investing is growing in popularity, good, old-fashioned stock-picking still has its true believers.

As part of Morningstar.com's Beat the Market week coverage, which includes in-depth looks at some of today's top active fund managers and their processes, we asked readers on our Personal Finance discussion board which active managers they like most and why. (You can read the full conversation here.) The sheer number and variety of responses suggests that interest in active management is alive and well.

All in all, readers mentioned more than 50 money managers as being their favorites, with many naming more than one. Some singled out individual managers or funds, while others mentioned entire fund firms or their subadvisors. A tally of the most oft-mentioned names (as of April 24) went as follows:

9 votes: Primecap
8 votes: Yacktman, Joel Tillinghast ( Fidelity Low-Priced Stock (FLPSX))
6 votes: Dodge & Cox, David Giroux ( T. Rowe Price Capital Appreciation (PRWCX)), Sequoia, Wellington
5 votes: Steve Romick ( FPA Crescent (FPACX))

Praise for Primecap
The prominence of subadvisors Primecap and Wellington among those mentioned was particularly notable. ColonelDan was among those naming both as favorites. "Both consistently adhere to sound investment philosophies with proven results over the long term," he wrote.   

Tommy06 agreed. "They're both disciplined, patient, do their homework well, and are consistent hitters who don't go for home runs every time," he said.

Bob47 shared his story of lucking into investing with Primecap early in his investing life. "I was just starting out and had a small account many years ago with Vanguard," he recalled. "I called them one day and told the person who answered the phone that I was going to start putting money into a stock mutual fund and asked if he had a favorite. I'm sure today this would not happen, but he said the Primecap guys were really sharp and that they had impressed him, and so began my long journey with them. Little did I know that I was getting one of the best long-term performers out there. Sure they've had periods when they weren't at the top of the charts, but I've stuck with them, contributing new money all along the way. Persistence, luck, and recognizing skilled managers can sure go a long way." (Morningstar senior fund analyst David Kathman recently detailed "Primecap's Best Practices" for Morningstar.com.)

Multiple Favorites, Singular Themes
Many readers, including DaveCFA82, shared long lists of active managers they like, often basing those preferences on specific themes. His list included "Artisan, Oakmark, Oaktree, FPA, Sequoia, Yacktman, Weitz, Royce--essentially fundamental value managers with no regard for benchmarks and with risk defined by loss of capital, not volatility."

KTI Investing offered"Tillinghast, [Fidelity's Will] Danoff, [Ron] Baron, [Oakmark's David] Herro, [Loomis Sayles' Dan] Fuss, and the team at Dodge & Cox. [They all have] long-term, generally consistent performance from people who do not deviate from their fundamental investing philosophy so that I can rely on them to do, over longer periods of time, what they said they would do: make me money without taking on ridiculously high risk. If they make mistakes, I expect them to fix it and move on, as did Dodge & Cox after the debacle of 2008. I don't flinch if they don't. But if I see a sea-change in the philosophy, as I did with  Fairholme (FAIRX), then I bolt even if they made me money."

Others, however, listed Fairholme and manager Bruce Berkowitz among their favorites.

"I consider myself a value investor, one more in the Warren Buffett mold where investing in companies with solid moats is just as important as getting a good price," wrote proxysteve. "I also like Bruce Berkowitz. He employs a similar strategy, but he also allows for 'distressed' situations. These can, and recently have, taken up a large portion of his portfolio. Additionally, he'll employ extreme concentration. While I don't shy away from the latter, when combined with distress I get a little queasy allowing it to be too large an overall allocation."

SkepticalG wrote of Berkowitz's charge: "It's an ultra-high-focused fund with high conviction and known to delve into equities and bonds, understand more of their complexities, and ultimately invest in them when everything adds up. He is not afraid to hold them for longer periods. Also [it has been in the] top percentile for last 10 years."

Giving Credit Where Credit is Due
A list offered by academic included several other fund managers that were popular picks among readers.

"I mainly have to go with the managers who have earned the greatest returns for me: Will Danoff [ Fidelity Contrafund (FCNTX)] and Joel Tillinghast (since the mid-1990s), and David Herro [ Oakmark International (OAKIX)] and the Sequoia team," he wrote. "Hakea Castegran [formerly  Harbor International (HIINX)], who sadly passed away a few years ago, deserves a mention alongside these others for the same reason. Other managers whose funds I own and have confidence in include Bill Nygren at Oakmark and Charlie Dreifus with  Royce Special Equity Multi-Cap . The main reason is the good results they've achieved with my invested funds. Other reasons include some or all of the following: a good long-term track record, value investing approach, willingness to be different, low turnover (indicating conviction in chosen investments), intelligent, thoughtful writings and interviews, and investor communications with detailed explanations for specific investment choices that make sense."  

Drmoran offered his own list, but singled out Fidelity's Tillinghast in particular. "The winner overall, I would think, has to be Tillinghast, and with a large fund no less. Amazing work from that guy," drmoran wrote. 

Other managers frequently mentioned by readers included T. Rowe Price's David Giroux, whom theDumberOne lauded for his "disciplined approach" and "long-term performance record," as well as FPA's Steve Romick, whom proxysteve praised for his "concern about capital preservation while still achieving equitylike returns."

Among the fund families garnering repeated praise was American Funds.

"[These funds have] above-average long-term (15 years plus) performance, below-average expenses, downside protection in most bear markets, research process, experienced managers/analysts, and a stewardship grade of A," Rathgar wrote in his explanation. "They have no trendy funds, excellent customer service, and very good annual reports. If I had to pick one active money manager it would be this fund family."

NJI Investor seemed to agree, saying, "I like their team approach and patient long-term outlook."

Finally, markb gave a shout-out to a pair of veteran managers whom others may have overlooked. "My list includes many of the names already here, like the folks at Sequoia, Giroux, Dreifus, and Nygren, but how about a mention for another couple of great veterans like Chuck Royce for small caps and Clyde McGregor at  Oakmark Global (OAKGX) and  Oakmark Equity & Income (OAKBX)? They have great long-term records, and they've seen every market condition many times."