Our U.S. stock fund managers of the year focus on very different stocks, but they're both graybeards who have trounced their peers by buying solid stocks and holding them for years.
Our winners are Joel Tillinghast, manager of the
Fidelity Low-Priced Stock fund since its 1989 launch, and Ritchie Freeman, who has run
Smith Barney Aggressive Growth for 18 years. This year the former's small-cap value style was in favor and the latter's growth style wasn't. Both managers did what they've done regardless of the skies over Wall Street: sparkle.
Let's check out our winners and some solid runners-up, starting with Tillinghast.
Joel Tillinghast, Fidelity Low-Priced Stock
Imagine 315-pound basketball player
Oliver Miller winning the Boston Marathon in record time and you'll begin to understand why Tillinghast merits a pat on the back.
The average small-cap value fund has some $330 million in its coffers, but Tillinghast's fund has more than $11
in assets. When it comes to bargain hunting among illiquid, small-cap stocks, that kind of asset bloat is usually seen as an automatic performance killer. Most managers say they can't build or erase positions without moving stock prices and eroding returns when they have $1 billion to run. Tillinghast's solid stock picking, vast diversification and low trading have made him the exception.
Assets: $11.4 billion
1-Year Return: 30%, beats 85% of Peers
10-Year Return: 17.1%, beats 93% of Peers
Sources: Morningstar and Fidelity. *Since fund inception.
He holds about 750 stocks in the fund, more than three times his average peer, but trades only half as much. You'd expect a fund with such sprawling, seemingly static holdings to simply plod along -- yet Tillinghast has routinely lapped his nimbler peers.
Thanks to an emphasis on soaring retailers such as
and restaurants such as
, he's up 30% over the past 12 months. That tops 85% of his competitors and beats the
by 38 percentage points.
But prescient moves and strong relative returns are nothing new. Tillinghast has topped the S&P 500 and at least three-quarters of his rivals over the past one, three, five and 10 years, according to Chicago research house Morningstar. A $10,000 investment in his fund on Oct. 31, 1991, would've been worth more than $47,000 some10 years later, compared with $33,000 for the same investment in an S&P 500-tracking index fund.
Source: Morningstar. Returns through Dec. 24.
Beyond these gains, Tillinghast's low-trading, diversified approach also has made the fund less volatile and more tax-efficient than its competitors. His worst one-year loss is a 0.1% dip in 1990; the fund's limited capital gains distributions have made it more tax-efficient than 89% of its peers.
Hard to knock that.
Ritchie Freeman, Smith Barney Aggressive Growth
How bad are things for growth funds, and how stunning is Ritchie Freeman's record? He's getting this nod when he's down almost 5% for the year.
Assets: $5.1 billion
1-Year Return: 3%-4.5%, Beats 97% of Peers
10-Year Return: 19.8%, Beats All Peers
Sources: Morningstar and Citigroup.com
Freeman has quietly built one of the fund world's most enviable track records with a strategy that sounds downright vanilla. He scours the small- and mid-cap ranks, looking for companies he thinks will grow their earnings at a 20% annual clip. Typically, Freeman finds his faves in the health care and tech sectors, in which more than half the fund's cash is stashed. And when he finds them, he tends to hold them for years, as seen by his minimal trading. Chip titan
, for instance, has been in the fund since the 1980s.
The pragmatic approach might sound blah, but Freeman's gains are anything but. His fund beats the S&P 500 and
a whopping 97% of its peers over the past one, three, five and 10 years. He's doing the same this year, even though he's down 4.8% since Jan. 1. For a little perspective, the average big-cap growth fund is down 24% over the same stretch.
A $10,000 investment in Freeman's fund 10 years ago would've been worth more than $50,000 on Nov. 1, compared with $33,000 for an S&P 500 index fund.
As with Tillinghast, Freeman's savvy choices and limited trading have also made the fund less volatile and more tax-efficient than its peers. Aside from rooting for the Mets, it's tough to question Freeman's choices.
Source: Morningstar. Returns through Dec. 24.
Not All Lollipops and Ice Cream
Of course, these two vets' obvious skills don't mean their funds are riskless or must-owns.
2002 Preview: A Mutual Fund Wish List
2001 Review: The Year in Funds
Top '01 Foreign Stock Fund Managers: Jean-Marie Eveillard, Charles de Vaulx
Top '01 Bond Fund Managers: Ken Leech and His Supporting Cast
In Tillinghast's case, one might wonder how much more money he can handle before being hamstrung. And whenever he retires, who knows if another manager will steer the tanker so deftly? The same concern is a shadow over Freeman's fund. One might also wonder if this year's steady stream of inflows will slow Freeman down, or how well his fairly concentrated portfolio would weather a year in which several of his faves fall hard and in unison.
Despite these concerns, investing essentially boils down to gaining more than your peers in good times and losing less in tough times, and this pair won because they have consistently done both. If you're curious who else was on our short list, wonder no more:
Bill Nygren (
Bill Miller (
Legg Mason Value Trust), the team that runs the
Dodge & Cox Stock fund and Ira Unschuld, who is quietly building a stunning record with his shuttered small-cap fund,
Ian McDonald writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to
firstname.lastname@example.org, but he cannot give specific financial advice.