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Announcing Morningstar's 2017 U.S. Fund Managers of the Year

These winners think long-term.

Mentioned: , , , , , , , , ,

The 2017 Morningstar Fund Managers of the Year distinguished themselves in a year marked by big gains in growth-leaning parts of the market, including technology, emerging-markets, and high yield. Our 2017 winners did not rush into those market trends but rather benefitted when long-held investments paid off. The managers’ patience and resolve distinguish their strategies and drive our long-term recommendations of their funds.

To be nominated for Fund Manager of the Year, the manager’s mutual fund must have earned a Morningstar Analyst Rating of Gold or Silver, signaling our analysts’ conviction in the fund’s future prospects, and generated strong recent and long-term risk-adjusted returns. Moreover, our analysts look for funds that hail from shareholder-friendly parent firms that have been good stewards of capital. Once the list of nominees has been assembled, the entire analyst team meets to debate their merits and, following those discussions, votes to determine the winners.

Here are the 2017 winners, followed by our analysts’ takes on what makes them stand out:

Domestic-Stock Fund Manager of the Year
Steven Wymer
 Fidelity Growth Company (FDGRX)
Morningstar Analyst Rating: Silver 
2017 Return: 36.8%
2017 Morningstar Category Rank (Percentile): 5
10-Year Annualized Return (as of Dec. 31, 2017): 11.44%
10-Year Morningstar Category Rank (Percentile): 4

Steven Wymer has run Silver-rated Fidelity Growth Company since 1997. His penchant for firms operating in fast-growing niches with above-average top-line growth prospects and distinctive products often leads him to technology and healthcare stocks, two of the fund's largest sector weightings. In addition to the so-called "FANG" stocks ( Facebook (FB),  Amazon.com (AMZN),  Netflix (NFLX), and  Alphabet (GOOG)), Wymer has scored with picks across the market-cap spectrum. He first bought top holding  NVIDIA (NVDA) as a mid-cap name in 2008, and the stock rose 82% in 2017. A more recent offbeat addition, Shopify (SHOP), also stoked the fund's 2017 results.

In all, the fund's 36.8% advance in 2017 topped 95% of its large-growth Morningstar Category peers and trounced its Russell 3000 Growth Index benchmark's 29.6% tally. Over Wymer's tenure, the fund's 10.9% annualized total return is 3.7 percentage points higher than the category average and easily ahead of the index's 7.8% advance. Risk-adjusted returns over the period also are strong. These attractive long-term results have drawn investors' attention through the years, and this $75 billion strategy has been closed to new investors since 2006 to protect Wymer's ability to invest in the small- and mid-cap names that spice up this portfolio.

International-Stock Fund Manager of the Year
Sarah Ketterer, Harry Hartford, and Team
 Causeway International Value (CIVVX)
Morningstar Analyst Rating: Gold
2017 Return: 27.1%
2017 Morningstar Category Rank (Percentile): 14
10-Year Annualized Return (as of Dec. 31, 2017): 3.1%
10-Year Morningstar Category Rank (Percentile): 10

This seasoned team of eight portfolio managers, which is led by Sarah Ketterer and Harry Hartford, employs a distinctive value strategy. It uses fundamental and quantitative analysis to find 50 to 60 attractively priced stocks that the fund holds for the long haul. 

The team’s patience and contrarian approach paid off in 2017. It built a hefty stake in  Volkswagen (VOW3) during the carmaker’s emissions scandal, and the company’s stock gained more than 40% last year. Several of the team’s other European holdings flourished in 2017, including the Dutch chemical manufacturer  Akzo Nobel  (AKZA) (which has been in the portfolio for more than a decade). All told, this Gold-rated fund returned 27.1% last year versus 22.1% for the average foreign large-value offering, 25.0% for the MSCI EAFE Index, and 21.4% for the MSCI EAFE Value Index. 

The team’s strategy is aggressive, and its penchant for going its own way can backfire, so the fund can suffer extended slumps. But there’s no arguing with the team’s long-term record. The fund 9% annualized return over the 15-year period ended Dec. 31, 2017, compares favorably to the average foreign large-value offering (7.9% annualized), the MSCI EAFE Index (8.1% per year), and the MSCI EAFE Value Index (8% per year). The fund is open to new investors. 

Fixed-Income Fund Manager of the Year
Michael Collins, Robert Tipp, Richard Piccirillo, and Gregory Peters
 Prudential Total Return Bond (PDBZX)
Morningstar Analyst Rating: Silver
2017 Return: 6.6%
2017 Morningstar Category Rank (Percentile): 2
10-Year Annualized Return (as of Dec. 31, 2017): 6.0%
10-Year Morningstar Category Rank (Percentile): 1

PGIM may not be as well-recognized as other big bond shops, but its fixed-income group runs roughly $700 billion in assets.

That includes about $80 billion devoted to strategies like this one, which is overseen by four senior investors, each with at least 23 years of industry experience. The overall group is run by CIO Mike Lillard, and his earlier role as head of risk management gives a window into the priorities of the team and this fund.

This portfolio carries well-defined risk guidelines and benefits from the methodical, deep, and broad research across sectors and disciplines of roughly 125 portfolio managers, 100 analysts, and 50 quantitative and risk-management professionals. So, while the firm itself is rooted in its history as a manager of insurance assets leaning heavily toward corporate credit, the fund has enjoyed success with a broader scope, both over the long term and in the past year. Security selection, sector allocation, and yield-curve and duration positioning were all significant contributors to its outperformance in 2017. The fund’s long-term returns are exceptionally strong: Its 10-year record is tops in a competitive category, both on a total-return and risk-adjusted basis.

Allocation and Alternatives Fund Manager of the Year
David Giroux
 T. Rowe Price Capital Appreciation (PRWCX)
Morningstar Analyst Rating: Gold
2017 Return: 15.4%
2017 Morningstar Category Rank (Percentile): 22
10-Year Annualized Return (as of Dec. 31, 2017): 9.0%
10-Year Morningstar Category Rank (Percentile): 1

David Giroux, lead manager at Gold-rated T. Rowe Price Capital Appreciation, was the inaugural Morningstar Allocation Fund Manager of the Year winner in 2012, making this his second win. Giroux's savvy allocation decisions and disciplined approach have paved the way to the fund’s 9.2% annualized gain (as of Dec. 31, 2017) during his tenure, which began in June 2006. That showing topped the fund’s typical allocation--50%-70% equity Morningstar Category peer by 3.6 percentage points per year. Those results have attracted significant inflows, and the fund closed to new investors in June 2014.

Security selection within the fund’s stock and bond sleeves has been remarkably strong over the past decade. The stock sleeve has about doubled the return of the S&P 500 over that span, and the bond sleeve outpaced the Bloomberg Barclays U.S. Aggregate Bond Index by more than 150 basis points annually. In 2017, top healthcare picks  Abbott Laboratories (ABT) and  PerkinElmer  (PKI) both outperformed the S&P 500's broad healthcare sector. Plus, Giroux's sizable high-yield bond exposure also rewarded fundholders in 2017. He favored BB rated bonds because he believes they are overly punished for landing just outside of investment-grade status. This was more than enough to offset the fund’s cash drag, as Giroux left about 14% of the fund’s assets in cash during 2017.

Katie Rushkewicz Reichart, Andrew Daniels, Eric Jacobson, and Leo Acheson contributed to this article.

Laura Pavlenko Lutton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.