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Mutual Funds
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The 7 best fund managers of 2005
From investing legends to rising stars, here are the standouts of the year in seven diverse stock-fund categories.
By Timothy Middleton
This year has been a virtual mirror of last year in the stock markets, which traded sideways until beginning a rally in the middle of October. The three previous years brought a little more variety, with a big rally in 2003 coming on the heels of the even bigger declines in 2001 and 2002.
In short, mutual-fund managers have recently faced every test that events could throw their way, and a handful of managers have emerged not merely intact, but in charge. I believe that seven of them (or teams of them) are among the best managers the fund industry has yet brought us, and are certainly the stars of 2005.
Lists like this are always arbitrary, and I winnowed out a number of great managers because Im selecting only one from each of seven equity-centric fund categories. I wanted to identify at least some investments which are likely to fit into nearly anyones portfolio.
A couple of my picks are investment legends -- Sig Segalas of JennDry Jennison 20-20 Focus (PTWBX) and G. Kenneth Heebner of CGM Realty (CGMRX). At least one, John Montgomery of Bridgeway Micro Cap (BRMCX), is a candidate for such superstardom.
But the others are quite worthy, too, and their views on todays markets are backed up by superlative performance in those markets. The fact that they dont agree with each other only demonstrates that there is no one path to investment success.
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As of right now, with the Vanguard 500 Index (VFINX) up 5.1% this year as of Nov. 21 and Vanguard Total Bond Market Index (VBMFX) up 1.5%, heres how our stellar cast is performing.
| Seven best fund managers of 2005 | | Fund | Manager | YTD* | 5-year | | Amana Mutual Funds Trust Growth (AMAGX) | Nicholas Kaiser | 19% | 3.9% | | JennDry Jennison 20-20 Focus (PTWBX) | Spiros Segalas, David A. Kiefer | 20% | 6.5% | | Bridgeway Micro Cap (BRMCX) | John Montgomery | 28.3% | 20.8% | | James Balanced: Golden Rainbow (GLRBX) | Frank James, et al. | 7.5% | 8.3% | | Ivy Asset Strategy (WASAX) | Michael L. Avery, Daniel J. Vrabac | 19.8% | 8.1% | | Diamond Hill Focus Long-Short (DIAMX) | Ric H. Dillon Jr., Charles S. Bath | 17.4% | 11.6% | | CGM Realty (CGMRX) | G. Kenneth Heebner | 22.5% | 29.5% |
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*As of Nov. 21, 2005
Source: Morningstar
My other criteria are these: Each of these men (and it just so happens they are all men), or team leader, has been at the helm of his fund for at least five years. Each fund ranks among the top 1% of similar funds in the year to date, and among the top 10% in the last one, three and five years, according to Morningstar.
Here's a closer look at each manager, listed by the type of fund they run:
Conservative stock funds
Nicholas Kaiser, Amana Mutual Funds Trust Growth (AMAGX): Though not a Muslim himself, Kaiser runs this fund according to Islamic principles, at least some of which are very sound from an investment point of view.
Borrowing at interest is frowned upon, for example, so the funds holdings have strong capital structures and balance sheets. Actually, this is a compromise with reality; Islam forbids interest altogether, but any American company that doesnt borrow does invest its idle cash, and they dont do it for free. Kaiser looks for debt no greater than one-third of the companys market capitalization.
These and other rules limit Kaiser to only about 45% of the stock market, and his value bias limits him still further. But the times have dragged some high flyers, like Apple Computer (AAPL, news, msgs) and Qualcomm (QCOM, news, msgs), to within Kaisers reach.
Were very much a technology fund, but as value players we dont pay up for stocks, says Kaiser. We bought Apple Computer when it was selling at almost cash value. That was about $10 a share four years ago; now the shares trade around $65.
Very long holding periods are another attribute of Amana. Were not traders; were buy and hold, Kaiser says. Turnover is a minuscule 2%.
Moderate-risk stock funds
Spiros Segalas and David A. Kiefer, JennDry Jennison 20-20 Focus (PTWBX): This fund owns 40 names, half of them selected by Kiefer, a value manager, and the other half by Segalas, a growth advocate who entered the business in 1960 and is now chief investment officer of Jennison Associates Capital Corp.
Segalas, who cut his investment teeth helping his father manage money for fellow Greek immigrants, says growth investing is poised to take off, in part because its been unpopular since the bear market began five and a half years ago.
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