BOSTON – In the wake of damaging mutual-fund trading scandals, Morningstar Inc. said it focused on stewardship ratings in addition to investment performance when choosing the 2005 winners of the firm's coveted manager of the year awards.
The Chicago-based investment research firm said Christopher Davis and Ken Charles Feinberg of Selected American Shares (SLASX) and Davis NY Venture A (NYVTX) sealed Morningstar's 2005 domestic-stock fund manager of the year award.
Robert Lyon, Matthew Pickering and Jerrold Senser of ICAP International fund (ICEUX) won the honors for international-stock fund manager.
Additionally, Morningstar announced Tad Rivelle, Laird Landman, Stephen Kane and David Lippman, the management team for Metropolitan West Total Return Bond fund (MWTRX) , prevailed in the fixed-income space.
"This year is interesting because we picked managers we've long thought of as top-notch stock or bond pickers, as well as superior stewards of capital," said Kunal Kapoor, director of mutual fund analysis at Morningstar (MORN) , in an interview Wednesday.
All In The Family
Domestic-stock fund winner Christopher Davis reinforces the notion that the apple doesn't fall too far from the tree. His father, Shelby Davis, won the award in 1996.
Davis and Feinberg are the managers for the directly-sold Selected American and its cousin Davis NY Venture, which charges a sales charge or "load." The management pair was a runner-up for the same Morningstar award in 2004.
Morningstar praised Davis and Feniberg's ability to beat the S&P 500 index (SPX) by 5 percentage points in 2005 even though the portfolios were tiled to financials in a rising interest-rate environment.
"The naysayers said financials would have an awful year in 2005," said Kapoor. "But [Davis and Feinberg] demonstrated that if you know your companies better than your peers, you can do well."
Some uncharacteristic but timely investments in the energy sector were also a boon for the low-turnover funds, he noted.
Over the past 10 years, the funds have beaten more than 90% of their large-cap blend peers, according to Morningstar, which also gives high marks to Davis Selected Advisers for stewardship.
When the firm was recently tapped to run the Clipper fund (CFIMX) , it agreed to knock down fees and invest $50 million of its own cash into the fund.
The managers at ICAP International fund rode an opportune bet on Japanese stocks to a 19% gain in 2005. The managers in spring elected to broaden the fund's strategy away from a focus on Europe.
"The managers were talking about Japan earlier than a lot of others, and they're one of the few international shops that does very good macro-analysis," Kapoor said.
Morningstar also likes the concentrated fund's 0.8% expense ratio, compared with the 1.5% category average for its peers.
Management gets kudos for paying its board in fund shares and limiting staff turnover. ICAP was also among the finalists for this year's domestic-stock manager of the year.
"We have confidence in the team's ability because they have consistently outperformed as a Europe-only fund," said Kapoor in a statement. Over the past five years, ICAP International has gained 9.9% annually, according to Morningstar.
"We're also encouraged that Lyon and his team invest heavily in the shop's funds," Kapoor added.
Bonding With Investors
A willingness to take contrarian positions and solid stewardship ratings helped the management team at MetWest Total Return Bond fund walk off with Mornigstar's fixed-income prize.
"They're quintessential value investors in bonds who look for mispricings and to add value by taking meaningful and well thought-out bets against the benchmark," Kapoor noted.
"The fund can lag its peers in the short term, but it has done well over extended periods and management is focused on long-term results," he said.
In 2005 the fund ramped up its exposure to high-yield and other sectors to return over 3% to shareholders, besting 95% of its peers according to Morningstar. MetWest Total Return Bond has an annualized return of 7.2% since its 1997 launch, topping the average intermediate-term bond fund's 5.8% return, notes Russel Kinnel, Morningstar's director of fund research.
"MetWest also gets an 'A' for stewardship because management invests in the funds and the firm keeps expenses low," wrote Kinnel in commentary posted Wednesday on Morningstar's Web site.