A Search for Time-Tested, Highly Selective Managers
We think these funds are well-suited for potentially difficult times ahead.
No matter the market environment, Morningstar's fund analysts have heard various fund managers proclaim that "it's a stock-picker's market." The clear implication is that the stock-picker in question will do a superior job of picking the right stocks in the near future and beat his or her benchmark and rivals. But one could argue that the familiar selling point is especially resonant now: While the valuations of so many stocks are down sharply following 2008's plunge, the economy is in bad shape, consumers appear tapped out, and borrowing money still isn't very easy. The number of companies that not only survive through these tough times but generate profit growth that justifies a rise in their valuations could be relatively few if conditions don't improve soon or if they even worsen.
Given these possibilities, we think it makes sense to use Morningstar's Premium Fund Screener to identify funds run by managers with at least 10 years of tenure who keep their portfolios compact (50 holdings or less), who navigated the treacherous market of the past 12 months relatively well, and who have generated top-third long-term returns. We eliminate funds with Morningstar Risk ratings of "high" so investors aren't subjected to extreme volatility. We're also sticking with funds that invest primarily in big firms so investors have core holdings from which to choose. And, of course, we want to home in on funds with below-average costs because they have a built-in advantage over their rivals. To view the results as of Jan. 20, 2009, click here.
Chase Growth (CHASX) is an underappreciated gem. Lead manager David Scott, who's run this large-growth fund since its December 1997 inception, and the team that supports him seek out firms that have long records of consistent profit growth, relatively little debt and stock purchases by insiders, and other demanding criteria. Unlike some rivals, Scott and company set fairly conservative price targets on their holdings and sell quickly, thus avoiding the blowups that occur when pricey fare fails to meet lofty earnings expectations. For example, management slashed its stake in energy stocks when they soared in 2008's second quarter, sparing shareholders significant losses as those stocks fell to earth in the latter half of the year. The one energy firm the fund held on to was ExxonMobil (XOM), which has weathered the storm far better than its peers thanks to its diversified operations. Despite a concentrated portfolio of 30-45 stocks, the fund has been a relatively consistent performer thanks to the team's risk-conscious approach and deft stock selection. We think that the team's efforts to limit both price- and balance-sheet risk will serve the fund well when the macroeconomic environment is gloomy.
Greg Carlson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.