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Why We Nominated These 3 Equity Managers

Why We Nominated These 3 Equity Managers

Susan Dziubinski: Hi, I'm Susan Dziubinski with Morningstar recently awarded its 2020 Awards for Investing Excellence. Today, we're looking at three equity funds run by managers who were nominated this year.

Kevin McDevitt: Akre Focus is a Silver-rated large-cap growth fund, and it's been very successful since the 2009 inception thanks to lead manager, Chuck Akre. Now again, Akre has managed this fund since its 2009 inception, and during that time, the fund beat the Russell 1000 Growth Index by about 1.6 percentage points annualized, which is especially impressive considering how difficult of a bogy that has been to beat. Now, Akre has done this by investing in companies with what he calls the "three-legged stools." That, is they have, first of all, sustainable competitive advantages within their business, and they generate high amounts of free cash flow. Second, they have shareholder-oriented management teams. And third, they're able to reinvest that free cash flow at high rates of return. This combination of factors, this combination of qualities, are what Akre calls "compounders"--that is, companies that will compound capital at high rates of return for years to come.

One of the things that distinguishes this fund from competitors is that long-term orientation, and it's been one of the key factors behind the fund's success. Now the types of companies he invests in are somewhat atypical for the large-cap growth space. You won't find a lot of the "who's who" of the large-cap growth universe in this fund. Also, too, it's important to note that although Akre himself was nominated for the Outstanding Portfolio Manager award, he is not doing this on his own. He has a very strong team behind him, including core managers John Neff, who joined the firm in 2009, and Chris Cerrone, who joined in 2012 and was just named a comanager in January of this year. In fact, those two are taking much more of a day-to-day role in managing the fund, and Akre, who himself is 77 years old, is still involved, but he's kind of functioning more in an oversight role at this point. With Neff and Cerrone at the helm, we're very confident that they will continue Akre's legacy.

Robby Greengold: Joel Tillinghast was nominated for Outstanding Portfolio Manager for his work on Fidelity Low-Priced Stock, which boasts one of the finest 30-year track records of any fund in the smaller mid-cap Morningstar Categories, and that's due to his leadership. Tillinghast is a value investor who scours the globe for what he thinks are resilient companies with long-term staying power. That is critical because he intends to invest over a multiyear horizon. With that in mind, he tries to assess the skill and trustworthiness of a company's management team so that he can gain confidence in that team's ability to make good decisions today and capably navigate future challenges or uncertainties. He tries to steer clear of companies whose key product or service could be subject to obsolescence in the near future or whose success relies on short-term make-or-break moments. Those sorts of binary outcomes don't appeal to him.

Although he is an extremely patient investor, he's not the type to build a portfolio for the sake of setting it and forgetting it. He's very hands-on. He has been extraordinarily diligent about continuously taking the pulse of the portfolio's holdings, making sure that their balance sheets continue to look solid, for example, or ensuring that their competitive advantages that he saw years ago remain. The fund has consistently held up relatively well during market drawdowns. Many of the periods when the market has fallen, this fund has stayed in the black, and during the fund's down periods, which are inevitable, the fund has preserved capital much better than its relevant benchmarks. Tillinghast's capable stewardship has led to the fund's solid and steady gains over the long run. And with the advantage of the fund's muted volatility and downside protection, shareholders have a lot to be happy about.

Nicholas Goralka: John Dance, Fidelity Emerging Markets' new manager, has an impressive resume and the backing of a robust analyst team. He has impressive credentials, though he only has about six years of management experience. After joining Fidelity in 2006, he was named manager of Fidelity Pacific Basin in 2013 and Fidelity Emerging Asia in 2017 building a strong record over his time at each of those strategies before taking over at Fidelity Emerging Markets in October 2019. Dance leans on Fidelity's deep emerging analysts team for support--a strong supporting cast that should help him as he gets his feet wet. Dance executed his growth-oriented approach well in the past, but this is his first diversified emerging-markets strategy. The portfolio looks as one might expect given his preference for consistent growth with high profitability metrics but also high price metrics compared to its benchmark and category.

While most emerging-markets managers consider regional economics, Dance's emphasis on that factor could cause some growing pains as he expands his investable universe past Asia into Latin America, Eastern Europe, and other emerging markets. He'll have to show his process is adaptable to a broader mandate after previously focusing on Asia, but he's off to a strong start, as this strategy ranks in the top decile of its category since Dance became lead manager. Dance has shown this process can be effective through his success of previous charges, and investors in this strategy have plenty of reason for optimism.

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