An Early Line on the Morningstar Domestic-Stock Fund Manager of the Year

It's that time again, when retailers start dusting off holiday displays and Morningstar's Manager Research analysts begin comparing screens and notes on who should be in the running for the Fund Manager of the Year awards in the domestic-stock, international-equity, fixed-income, allocation, and alternative asset classes. As usual, the eventual nominees will exhibit not only superior recent performance, but also outstanding longer-term results, enduring approaches, responsible stewardship, and a large body of satisfied, and presumably wealthier, long-term fundowners.

As we enter 2014's home stretch, here are some domestic-equity managers who could be candidates (we'll do similar articles on the other asset classes in the coming days and weeks). To arrive at this list I screened for actively managed domestic-equity funds that have Morningstar Analyst Ratings of Gold, Silver, or Bronze; top-quartile year-to-date and 10-year returns; and at least one manager who has been around for the trailing decade. As baseball fans know from this year's all-shook-up playoffs, a lot can happen in the final weeks of the season, so this is not an official list of nominees. Others can and probably will emerge. At this point, however, these managers could be contenders.

Prime Suspects
Primecap Management is at it again. The firm that won the award in 2003 for its work as subadvisor to  Vanguard Capital Opportunity (VHCOX) and  Vanguard Primecap (VPMAX) could conceivably be considered again this year for strong performance at those Gold-rated funds and  Vanguard Primecap Core (VPCCX). Each ranks in the top decile of their Morningstar Categories for year-to-date and 10-year periods through Oct. 22. By the end of the year, they also could be considered for  Primecap Odyssey Aggressive Growth (POAGX),  Primecap Odyssey Stock (POSKX), and  Primecap Odyssey Growth (POGRX). Those funds are just short of their 10th birthdays and didn't make this screen this time but have posted strong year-to-date and since-inception numbers, too; Primecap Odyssey Growth brings up the rear with a mere top-third showing so far in 2014.

For all of the funds, longtime holdings in biotech, Big Pharma, and airlines have fueled results. Many of those same stocks made the funds look sluggish at times in recent years. Their strong contribution this year is testimony to the efficacy of the patient, contrarian approach of the Primecap team: currently Theo Kolokotrones, Joel Fried, Alfred Mordecai, and Mohsin Ansari. The team's excellent long-term records at virtually everything they run, as well as substantial manager investment and willingness to close funds, won't hurt their cause this year.

Select List
Former winner Bill Nygren, who last took the honors in 2001, has put himself and his comanager in contention again at Gold-rated  Oakmark Select (OAKLX). The fund is up nearly 9% through Oct. 22 and in front of 98% of its large-blend peers as picks like  TRW Automotive Holdings ,  Intel (INTC),  Medtronic (MDT), and  FedEx (FDX) have posted double-digit returns. That's been enough to offset losses in  Apache (APA) and  MasterCard (MA) in this concentrated portfolio. Nygren lost longtime comanager Henry Berghoef in 2012 and gained two new ones--Win Murray and Tony Coniaris--last year. Nygren, however, still is the prime mover of this version of Harris Associates' high-conviction, long-term-focused, value-oriented approach. Nygren's other assignment, the Gold-rated  Oakmark (OAKMX), is having a more mediocre year with a 4.3% gain that lands in the middle of the large-blend pack through Oct. 22; but Nygren and comanager Kevin Grant's long-term record there still beats most peers and the S&P 500 by a wide margin.

Deal Them In
The team managing Silver-rated  American Century Mid Cap Value (ACMVX) has never won the award before, but it has made a case for itself this year. The team, which includes Kevin Toney, Brian Woglom, Michael Liss, and Phil Davidson, has posted a more than 8% return for the year to date through Oct. 22 that beats 98% of its mid-cap value peers. They've done it by sticking to the same playbook they've used to good effect for years at other funds like  American Century Value (TWADX) and  American Century Equity Income (TWEAX). They're disciplined buyers and sellers of stocks. They rely on screens and fundamental research to find higher-quality stocks that look cheap by at least two valuation metrics and trim or sell resolutely when those shares exhibit more downside risk. Health-care stocks such as  CareFusion , Lifepoint Hospitals , and  Hospira have helped this year, and so has some serendipitous merger and acquisition activity, such as  Tyson Foods (TSN) takeover of Hillshire Brands and Dollar Tree (DLTR) and  Dollar General's (DG) ongoing battle over Family Dollar Stores .

Strong Appreciation
Patrick Kelly has put up strong results in his 10 years at the helm of Bronze-rated  Alger Capital Appreciation (ALARX). Through Oct. 22, it ranked ahead of 99% of other large-growth funds for the decade with a 12.3% annualized return. It's up more than 5% so far this year and in the group's top quartile, thanks in part to health-care picks like  HCA Holdings (HCA),  Gilead Sciences (GILD), and  Actavis and tech picks like  Apple (AAPL) and  Facebook (FB).  Alger Spectra (SPECX), which Kelly also has run for a decade, is lagging this fund a little this year with a 4.5% gain--in part because it's more of an all-cap fund where Kelly can and does short stocks--but has an even better 10-year annualized gain of 13.6%. Fees and turnover are on the high end at both funds, but Kelly has stuck to his aggressive process, which looks for both emerging firms with high unit volume growth and established firms undergoing positive life cycle changes, such as product innovation.

Highly Convicted
The closed  Longleaf Partners Small-Cap (LLSCX) has bounced back after a poor relative 2013, even though it's practically taken its ball and gone home. The Gold-rated fund has about 36% of its assets in cash and about 15 stock holdings due to a lack of attractively priced stocks. Yet it has been number one in its mid-cap blend category for 2014 through Oct. 22, with a 7.6% gain that beats 98% of its peers and the Russell 2000 and Mid Cap indexes, which have posted a 4.8% loss and 5% gain, respectively. This would be the fund's seventh top-decile calendar year in the last 11 if it keeps up the pace, though it's also finished in the bottom quartile three times. Most of what has propelled the fund this year are stocks it has owned for years. The fund benefited from the takeover of Texas Industries by  Martin Marietta (MLM) earlier in the year and from the strong performance of other older selections, such as Level 3 Communications and Fairfax Financial Holdings (FFH). A new comanager, Ross Glotzbach, joined this fund's management team this year, but that doesn't diminish the record of veterans Mason Hawkins and Staley Cates. The managers have struggled this year at their other funds,  Longleaf Partners (LLPFX) and  Longleaf Partners International (LLINX), which both fell in the bottom decile of their respective categories for the year through Oct. 22.

Income Anonymous
Silver-rated  Parnassus Core Equity (PRBLX) changed its name this year, but not its strategy. It used to be called Parnassus Equity Income, but it was always a little aggressive for that name. It has had to and still does keep 75% of its assets in dividend-paying stocks, but growth and quality have always been the primary focus of longtime lead manager Todd Ahlsten and comanager Ben Allen. Their low-turnover portfolio of about 40 companies offers a mix of aggressive and steady growth businesses that also pass Parnassus' environmental, social, and governance, or ESG, screens. Despite its issue and sector concentration and above-average helping of mid- and small-cap stocks, the fund has been remarkably resilient over its history. This year, health care and M&A activity have boosted returns.  Allergan , which has been on the wish list of the acquisitive  Valeant Pharmaceuticals (VRX) this year, has been a big contributor to the fund's 7.7% gain and top-quartile ranking among large-blend funds.

Aggressive Case
Richie Freeman of Silver-rated  ClearBridge Aggressive Growth (SHRAX) has been tossed around as a potential winner a few times over his long career, but he has never claimed the title. He's entered the discussion again this year with a 7.5% gain that beats 97% of the large-growth category and a top-quartile 10-year ranking. As before, it's not what Freeman has done this year that has helped him in 2014, but what he did years ago. Health-care stocks that Freeman first bought for this fund about two decades ago, including  Amgen (AMGN) and  Vertex Pharmaceuticals (VRTX), have been among the portfolio's biggest positive contributors so far this year. Patience has been Freeman's hallmark at this very-low-turnover large-growth fund. Though buying and holding a compact portfolio of high-expectation stocks has made this fund more volatile than its peers over time, Freeman and comanager Evan Bauman have compensated with good stock-picking.