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Nominees for 2014 Allocation Fund Manager of the Year

A dynamic market in 2014 gave allocation managers plenty of opportunities to stumble or soar.

Securities In This Article
Vanguard Wellington™ Inv
JPMorgan SmartRetirement® 2055 R5
JPMorgan SmartRetirement® Income R5
UnitedHealth Group Inc
Intel Corp

Last week, we revealed the nominees for Morningstar's Domestic-Stock, International-Stock, and Fixed-Income Fund Manager of the Year. Below are the nominees for Allocation Fund Manager of the Year. A column discussing the nominees for Alternatives Fund Manager of the Year will follow later this week.

We will announce the winners on Jan. 21.

2014 proved to be a whirlwind for the markets and allocation managers. Falling interest rates caught many investors by surprise, while U.S. equities posted double-digit gains for the fifth time in the past six calendar years, and the price of oil dropped more than 50% from its midyear peak. Managers that were long duration, held an overweighting to domestic stocks or REITs, or treaded lightly in energy-related securities generally fared well.

While some of this year's nominees held one or more of those positions, they did more than just ride the market waves. They proved skillful in a multitude of facets, such as asset allocation and security selection, which helped them to navigate 2014's market environment with success.

Of course, having one good year doesn't necessarily merit a nomination. To be considered for Morningstar's Fund Manager of the Year award, a manager must also boast a strong long-term record and enjoy a Morningstar Analyst Rating of Gold, Silver, or Bronze, which mark the funds that Morningstar analysts believe are likely to outperform their category peer groups and appropriate benchmarks on a risk-adjusted basis over a full market cycle.

Here are the nominees for Allocation Fund Manager of the Year:

Anne Lester and Team, JPMorgan SmartRetirement Target-Date Series JSIIX, JSFIX, JTTIX, JNSIX, JSMIX, SRJIX, SMTIX, JSAIX, JTSIX, JFFIX 2014 Returns: 5.17%, 5.85%, 6.91%, 7.44%, 7.70%, 7.78%, 7.90%, 7.83%, 7.82%, 7.90% Morningstar Category Ranks (Percentile): 30, 14, 2, 1, 1, 3, 4, 7, 10, 9 We nominated Anne Lester and her team for this award in 2012, and the group has earned its spot again. This series has benefited from management stability, with Lester at the helm since its 2006 inception. A thoughtful asset-allocation process and careful manager selection further burnish the appeal.

The series' funds, on average, ranked in the best decile of their respective peer groups in 2014. The team fired on all cylinders, with strategic asset allocation, tactical positioning, and selection of underlying managers all contributing to outperformance. A highly diversified approach paid dividends, as a dedicated allocation to REITs and a modest bias toward emerging-markets stocks in the international sleeve contributed to results. A tactical overweighting to U.S. large caps and an underweighting to core bonds boosted performance. Strong showings from most of the underlying domestic-equity managers also propelled the series ahead of the competition.

The SmartRetirement funds' long-term absolute and risk-adjusted returns land among the target-date universe's best, largely due to additive tactical decisions and solid manager selection. The series fared exceptionally well in both 2008's downturn and during 2009's rally, a testament to the resiliency of the glide path and the group's tactical aptitude.

David Giroux, T. Rowe Price Capital Appreciation PRWCX 2014 Return: 12.25% Morningstar Category Rank (Percentile): 2

David Giroux won Morningstar's Allocation Fund Manager of the Year award in 2012, and he was nominated in 2013 as well. He has continued to impress, outpacing 98% of his moderate-allocation peers in 2014.

The fund's equity and bond sleeves both performed well in 2014. Stock winners included

Giroux had avoided Treasuries for years but bought some at the end of 2013 and sold that stake down in 2014 as it rallied. He also added a chunk of investment-grade corporates to the portfolio as rates rose in 2013, which boosted results this year as corporate bonds finished ahead of the broad bond index.

This fund has outperformed at least 87% of its moderate-allocation peers in each of the past six calendar years, and it came out slightly ahead of the pack in 2008's market sell-off. Strong results have attracted significant inflows, and the fund closed to new investors in June 2014.

Edward P. Bousa and John C. Keogh, Vanguard Wellington VWELX 2014 Return: 9.82% Morningstar Category Rank (Percentile): 11 Stability has been the key to this fund's success. Unlike many moderate-allocation peers, it doesn't make tactical shifts between stocks and bonds. Ed Bousa, lead manager of the equity sleeve, keeps stock exposure centered at 65% of assets and won't let it drift more than 2 percentage points from that target. John Keogh runs the remainder of the portfolio with a high-quality bond strategy. The duo relies primarily on security selection to come out ahead.

The fund outpaced 90% of its peers during 2014. In the equity sleeve, tech picks

The fixed-income portfolio also did well. Keogh keeps duration within one year of the fund's Barclays U.S. Credit A or Better benchmark. The fund's duration stood at 6.5 years as of November 2014, well above its typical peer's 4.4 years, which was a tailwind as rates fell during the year. The fund also benefited from solid corporate-bond selection and a stake in pass-through mortgages.

The fund ranks in the moderate-allocation Morningstar Category's best decile over the past decade. It also has held up well in tumultuous markets, as evidenced by top-quintile showings in 2008 and 2011.

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About the Author

Leo Acheson

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Leo Acheson, CFA, is director, multi-asset ratings, global manager research for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc.

He oversees Morningstar’s multi-asset ratings as well as the firm’s multi-asset and alternatives manager research team. The group covers a range of investment vehicles, including allocation strategies, alternatives, target-date funds, 529 plans, HSAs, model portfolios, and Mexican pension funds.

Before joining Morningstar in 2013, Acheson spent four years working for a Chicago-based investment consultant, conducting mutual fund and asset-class research to help corporations manage their investment programs.

Acheson holds a bachelor’s degree in finance and accounting from Indiana University’s Kelley School of Business. He also holds the Chartered Financial Analyst® designation.

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