Morningstar's top 2009 fund managers stuck to their guns

The three winners of the 2009 Fund Manager of the Year awards announced today by Morningstar Inc. all have one thing in common: they all stuck to their investment strategies during a difficult period, laying the groundwork for last year's success. That doggedness is why Bruce Berkowitz, founder and managing member of Fairholme Capital Management LLC, won for domestic-stock fund manager of the year as manager of the Fairholme Fund (FAIRX), said Karen Dolan, director of mutual fund analysis for Morningstar. Ms. Dolan said persistence was also the hallmark of the management team at the American Funds EuroPacific Growth Fund (AEPGX) from Capital Research & Management Co., which was named international stock fund manager of the year. The team that manages the Loomis Sayles Bond Fund (LSBRX) from Loomis Sayles & Co. LP also stuck to their guns in 2009. Morningstar named the Loomis bond fund team fixed-income manager of the year. “In 2008, many managers had a gut check moment,” Ms. Dolan said. “Do I want to stick with my strategy?” Those that didn't waver did best, she said. That doesn't mean the award winners didn't make change to their portfolios. For example, Mr. Berkowitz—a finalist last year for the InvestmentNews Rising Star Award, part of its Adviser's Choice awards — made major portfolio changes that paid off big, Ms. Dolan said. He revamped the portfolio in 2008 by selling high-flying energy stocks and picking up out-of-favor pharmaceutical and defense companies.
Those changes, however, were made as a result of a strategy whereby Mr. Berkowitz buys companies that are trading on the cheap relative to free cash flow. As a result, the Fairholme Fund gained 39% for the year in 2009, placing it in the top 9% of its large-blend category peer group, according to Morningstar. Also thanks to smart securities selection, the American Funds EuroPacific Growth gained 39.1% for the year in 2009, placing it in the top 15% of its foreign large-blend category peer group; and the Loomis Sayles Bond Fund gained 36.8%, placing it in the top 14% of its multisector-bond peer group.