Announcing Morningstar's 2016 Fund Managers of the Year

The 2016 Morningstar Fund Managers of the Year distinguished themselves in a period marked by geopolitical surprises and market headwinds, including redemptions as many investors moved their assets to passively managed index funds. Our winners bucked those trends and delivered outstanding performance, consistent with a strong long-term record and shareholder-friendliness. This year’s award winners have exemplified patience, resolve, and nerve over long and successful tenures.

To be nominated for Fund Manager of the Year, the manager’s mutual fund must be among the 1,200 that receive Morningstar Analyst Ratings and earn a rating of Gold, Silver, or Bronze. The medal rating indicates that our analysts believe a fund will outperform its category peers and/or benchmark on a risk-adjusted basis over the long haul. Looking at their individual coverage lists, analysts nominate Morningstar Medalist funds that have strong recent and long-term risk-adjusted returns, excellent stewardship practices, and broad shareholder bases. Our asset-class teams whittle down the list to a group of finalists. Then the entire analyst team meets to debate the merits of the finalists in each category, and, following those discussions, analysts vote to determine the winners.

Here are the 2016 winners, followed by our analysts’ takes on what makes them stand out:

Domestic-Stock Fund Manager of the Year

David Wallack

T. Rowe Price Mid-Cap Value

TRMCX

2016 Return: 24.3%

2016 Morningstar Category Rank (Percentile): 8

Manager David Wallack has successfully used a contrarian approach at this Gold-rated fund (closed to new investors since 2010) for the past 16 years. In addition to relying on T. Rowe Price's deep analyst team, Wallack puts his own stamp on the fund, incorporating unique insights to find out-of-favor companies that are ripe for a turnaround.

For example, Wallack upped the fund's energy stake in early 2016, driven by a handful of attractively valued companies that he considered to be financially strong enough to weather further pressure in the sector. This move stood out, not only for its effectiveness but also because most of T. Rowe Price's equity funds had underweightings in the sector.

Energy wasn't even the biggest driver of the fund's top-decile 24.3% gain in 2016. Successful stock-picking across a variety of sectors fueled performance and was especially impressive considering the fund's 6%-8% cash position during the year. The fund's contrarian nature can lead to lumpy short-term results at times, but it has added up to strong risk-adjusted performance during Wallack's tenure. The fund’s Sortino ratio over Wallack’s tenure is 4.89 compared with 3.10 for the Russell Mid Cap Value benchmark and 2.46 for the mid-value Morningstar Category.

International-Stock Fund Manager of the Year

David Herro

Oakmark International

OAKIX

2016 Return: 7.9%

2016 Morningstar Category Rank (Percentile): 3

David Herro goes his own way, assembling value portfolios quite different from those of indexes and peers. He ran this fund with Rob Taylor until Taylor's retirement in the fall. Herro won International-Stock Fund Manager of the Year in 2006 and was also named International-Stock Manager of the Decade for the 2000-09 period.

The most powerful engine behind Oakmark International's 2016 gain was mining stalwart

The fund's long-term record shows 2016 was no fluke. It lands in the top decile of the foreign large-blend category for the past five-, 10-, and 15-year periods through the end of 2016, and it has beaten the index soundly over all of those stretches.

Fixed-Income Fund Manager of the Year

Ford O’Neil and Team

Fidelity Total Bond

FTBFX

2016 Return: 5.86%

2016 Morningstar Category Rank (percentile): 4

The risk-on markets of 2016 proved a boon for Fidelity Total Bond, a core-plus strategy run by long-tenured manager Ford O’Neil and his team. A team-based approach employs expertise from across Fidelity’s mortgage, municipal, and credit specialists, many who run well-rated funds in their own rights. O’Neil aggregates this broad information and translates it into positioning at a total portfolio level with an eye to risk management.

The process had a strong impact in 2016, delivering performance that ranks fourth in the competitive intermediate-term bond category. Not only were sector allocation decisions strong--the fund dedicated relatively fewer assets to richly valued mortgages while it had an overweighting to credit with an emphasis on financials--but the team’s security selection and positioning also added to returns. For example, emerging-markets exposures to Argentina, Brazil, and Venezuela were particularly additive.

The fund also benefitted from the team’s oil trade. As oil prices dipped at the start of the year and spreads in lower-rated energy bonds widened, O’Neil and his team (who had an underweighting to energy prior that drop) added to pipeline names. When oil prices quickly bounced back, the fund benefitted. Elsewhere, the fund’s stake in longer-dated Treasury Inflation-Protected Securities, in anticipation of inflation, also played out well.

While the fund’s 5.9% return for calendar-year 2016 is a standout relative to peers, its team and process also have delivered over longer-term periods. Since O’Neil took the fund’s helm in late 2004 through the end of 2016, the portfolio has generated 4.8% of annualized return and lands in the top quartile of the category.

Allocation and Alternatives Fund Manager of the Year

The Equity and Fixed-Income Investment Policy Committees

Dodge & Cox Balanced

DODBX

2016 Return: 16.6%

2016 Morningstar Category Rank (Percentile): 3

This Gold-rated fund bounced back in 2016, gaining 16.6% and outperforming 97% of its allocation--50%-70% equity category peers. That’s quite a turnaround from the fund’s 2.9% loss in 2015.

The fund can invest between 25% and 75% of its assets in stocks and has kept to the higher end of that range, fluctuating between 65% and 75% over the past decade. That has served as a tailwind in a rising equity market, but the fund has also benefited from its deep and collaborative investment team. The fund brings together a strong value-oriented equity sleeve, managed by the investment policy committee that runs Gold-rated

Management’s commitment to the firm and to shareholders of its funds is impressive. Most of its managers have been with the firm for two decades or more, and eight have more than $1 million invested in the fund.