Finding All-Star Managers

Season's greetings, fellow fund fans.

In addition to celebrating the holidays, December at Morningstar 'tis the season for picking Fund Managers of the Year. The awards come in three flavors--domestic stock, international stock, and bond--and the selection process is well under way. You can begin reading all about it here, and then wait with bated breath for the winners themselves, who will be revealed on Jan. 2, 2003.

In the meantime, this week's Premium Fund Selector screen is designed to help you uncover stellar managers on your own--in particular, domestic-equity fund managers whose track records should cause visions of sugarplums to dance in your head.

Bear in mind, however, that a great track record means more than just a string of fat absolute gains. Important as a fund's performance is, it's also critical to understand how managers have earned those returns. Have they taken on excessive amounts of risk? Have their funds performed exceptionally well in some markets while posting dismal returns in others? Have shareholders endured wild performance gyrations? And how, by the way, have their funds held up when the going has gotten tough?

Our screen will answer those questions by homing in on long-tenured managers whose funds sport trailing long-term returns that land in the group's top quartile. In the domestic-stock (ex-specialty) universe, that means an annualized gain over the 10-year period of 10.74% or greater, which ensures that these managers have seen numerous market cycles and weathered them well. 

Strong recent performance is another requirement for Manager of the Year. To find 2002's standouts, we'll look for funds that have also returned at least -15.52% for the year to date--a mark which would earn a fund a spot in the top quartile of diversified funds through December 19, 2002.

Finally, we'll discard funds that haven't delivered at least above-average aftertax returns and include our usual filters for multiple share classes, closed funds, and pricey offerings. In fact, we'll be looking for funds whose expense ratios are 1.0% or less. Performance is variable, after all, but expenses represent a consistent drag on returns over the long haul.

Now, without further ado, the criteria:

(Fund Category = Domestic Stock (ex-specialty))
and (Morningstar Rating >= Four Stars)
and (Morningstar Risk <= Below Average)
and (10 Year Return > 10.74)
and (YTD Return >= -15.52)
and (Standard Deviation (3 Year) < Category average)
and (Fund Manager Tenure > 10)
and (10 Yr AfterTax Return (no sale) > Category average)
and (Expense Ratio < 1.0)
and (Closed to New Investment = No)
and (Distinct Portfolio Only = Yes)

Click here to run the screen yourself.

And voila! Once again, the Premium Fund Selector has done the heavy lifting for you, sifting through the vast universe of mutual funds to uncover just those that meet our exacting criteria. To research them further, click on the fund's name and proceed directly to its Morningstar.com Quicktake page.

As you can see, however, a mere nine funds made it through the screen. Depending on your goals and risk tolerance, the criteria above may be too stringent. The good news is that tweaking the screen to suit your purposes could hardly be simpler. Just click the back button at the bottom of the results page and modify, add, or eliminate criteria to your heart's content. You can also save the screen for later tweaking or to track the way results change over time.

In other words, jump in and splash around. The water is fine--a little cold this time of year, but fine nonetheless.