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15 Seasoned Pros Beating the Broad Market

Many investors get peace of mind out of putting their money in the hands of an experienced mutual fund manager. The argument goes that a manager who lived through the savings-and-loan crisis, Black Monday or the tech boom-and-bust is better prepared to avoid the next market downturn.

But several academic studies on manager tenure say otherwise. There is no definitive tie between the years a manager has under his belt and his ability to post above-average results. Indeed, if the last year has taught investors one thing it is this: The market doesn’t discriminate based on age or experience. Anybody can lose money.

Still, there are plenty of advisors that either factor tenure into their fund picking or at least keep a close eye on it. With that in mind, we devote this week’s fund screen to the seasoned pros of the mutual fund world. We started with a universe of 1,698 equity funds and share classes that have a manager who has been in place over ten years. Then, we narrowed that group by searching for funds with decent fees and top-tier performance track records during the year-to-date, 3- and 10-year time periods. We were left with the 15 funds in the table below.

There are several reasons to consider tenure when picking a fund. In our experience, many long-term managers have their names on the door or have a significant amount of their own money invested in the funds they run. (At least nine of the funds below fit that bill including Yacktman (YACKX) and Auxier Focus (AUXFX).) Tenure also can be a harbinger of a manager who has been able to implement his strategy over the long term without any pressure to post eye-popping numbers during shorter time periods. Finally, we would like to think the mutual fund’s best managers learn from their past mistakes although that isn’t always the case.

Of course, there are also some drawbacks. Proven managers are a valuable commodity with employers. If a manager is perceived to have a “hot hand,” his firm could attach his name to other funds to attract money or give him additional duties running other offerings. In either case, it’s hard for investors to judge where his time is being spent and if that is impacting his stock ticker-picking. And even hot managers who run up years-long streaks can go cold. Just ask the investors in Bill Miller’s Legg Mason Value Trust (LMVRX). Miller, who once beat the annual returns of the S&P 500 for 15 straight years, is finally having a good year after several that brought up the rear of Morningstar’s large blend category.

Maury Fertig, the chief investment officer of Relative Value Partners in Northbrook, Ill., may have found a happy medium. He focuses on expenses, returns and a fund’s strategy while also keeping an eye on manager experience. But there is a caveat: Fertig likes to see how a manager performs heading into past rallies and coming out of past bear markets rather than an extended period of time. “I like to take a snapshot of how they have done during various market cycles,” he says. “You want to get a sense of how they perform in different environments.”

Investors should weigh both sides of that argument and then consider the funds below. We last did this screen in March. Since then funds like Permanent Portfolio (PRPFX) and Oakmark Equity & Income (OAKBX) have dropped out of contention because of year-to-date returns. (Their long-term records are still top-notch.) However, Thornburg International Value (TGVAX), Osterweis (OSTFX), Westport (WPFRX) and Yacktman are making return appearances.

The Criteria: The equity funds on this week’s list have managers who have been in place for over 10 years. Their track records put them in the top 10% of their peer groups during the trailing 3- and 10-year time periods. (We used 5% in previous screens, but this time we wanted to give readers a larger sample set on the table.) They also had to sport a year-to-date return greater than the S&P 500. They are open to new money, require a minimum investment under $5,000 and charge an annual expense ratio less than 1.5%. Because this screen concentrates on experience, we allowed load funds.

Does Experience Matter?
Ticker Name YTD
Source: Lipper
Note: Data as of Sept. 3, 2009
* Manager’s Tenure tracks lead manager’s experience
GTAGX AIM Mid Cap Core Equity 15.77 0.09 7.92 1.25 11
AMAGX Amana Growth 17.13 0.08 6.07 1.31 15
AUXFX Auxier Focus 14.73 -0.09 5.33 1.35 10
DEFIX Delafield 36.69 -0.33 10.71 1.34 16
HAGAX Eagle Mid Cap Growth 22.37 0.74 6.75 1.30 11
GGOAX Goldman Sachs Growth Opportunities 34.76 1.71 8.88 1.47 10
JMCVX Janus Perkins Mid Cap Value 19.16 0.29 11.14 1.07 11
OSTFX Osterweis Fund 17.28 -1.93 5.84 1.20 16
RYPRX Royce Premier 21.00 0.85 10.23 1.13 17
RYSEX Royce Special Equity 16.36 2.12 9.98 1.15 11
SEVAX Rydex/SGI Mid Cap Value 25.96 -0.90 11.46 1.37 12
TGVAX Thornburg International Value 19.18 -1.02 8.53 1.28 11
WPFRX Westport 18.88 0.41 7.44 1.37 12
YAFFX Yacktman Focused 42.53 6.64 9.02 1.25 12
YACKX Yacktman 40.08 4.59 9.34 0.95 17

Fund Type = *
Manager’s Tenure >= 10
Annualized 3-Year Return (%) = Display Only
Rank in Classification (%) (3 year performance) <= 10
Annualized 5-Year Return (%) = Display Only
Rank in Classification (%) (10 year performance) <= 10
Expense Ratio <= 1.5%
Minimum Initial Investment <= $5,000
Open to New Investors = Yes
Total Net Assets ($ millions) >= 50
Year-to-Date Return (%) = Display Only

* Does not include fixed income, asset allocation or sector funds

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