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The Honolulu Advertiser

Posted on: Sunday, December 7, 2003

Rating mutual fund money managers can be tricky

By Warren Boroson
Gannett News Service

Who is the best mutual fund money manager in the world?

Morningstar's analysts think highly of William H. Miller III at Legg Mason Value Trust, who has beaten the Standard & Poor's 500 for 12 straight years and is a cinch to beat it again this year.

Christopher Traulsen, a senior fund analyst at Morningstar, writes that Bill Miller is "quite possibly the best mutual fund manager ever."

Kunal Kapoor, associate director of fund analysis, writes: "He is among the best at what he does."

And Christine Benz, editor of Morningstar FundInvestor, maintains that after talking with him a while back, she knew "he was the smartest manager around."

While conceding Miller's gifts, other managers may be just as good, such as Marty Whitman (Third Avenue), Jean-Marie Eveillard (First Eagle Global), Charles Royce, Charles Albers (Oppenheimer Main Street), Joel C. Tillinghast (Fidelity Low-Priced Stock), Mario Gabelli, Mason Hawkins (Longleaf), David J. Williams (Excelsior Value & Restructuring), William Ruane (Sequoia), John Montgomery (Bridgeway), the recently retired Ralph Wanger (Acorn) and Edward P. Owens (Vanguard Health Care). And what about Warren Buffett? His Berkshire-Hathaway is very much like a mutual fund.

Of course, rating managers is tricky. Do you favor someone who has returned 18 percent a year for 10 years, with three down years — over a manager who has returned only 12 percent a year for 10 years, with no bad years?

Even so, let's do a pseudo-scientific test. Let's add the "category ranks" of leading mutual fund managers over three years, five years, and 10 years. The lowest number wins. (Category rank: The percentile ranking of a fund's total returns compared with the total returns of similar funds.) We'll use the numbers from Morningstar's list of the 500 "best and most notable funds."

We'll start with Miller's Legg Mason Value Trust.

Three years: top 7 percent; five years, top 5 percent; 10 years, top 1 percent. Total, 13.

Now, this ranking emphasizes a fund's three-year record — because the three-year record is also in the five-year and 10-year records. But the recent record should be emphasized.

OK, let the contest continue. And, to build up the suspense, let's do this in alphabetical order.

Managers not running a fund for 10 or more years will be excluded from the winners' circle, but we'll name their funds, anyway.

Large growth

• The team at Amcap A (American Funds)
Three years: 2 percent; five years, 4 percent; 10 years, 3 percent.
Total: 9

• The team at Growth Fund of America (American Funds).
Total: 12

• The team at Jensen
Total: 10

Large blend

• David J. Williams at Excelsior Value & Restructuring
Total: 7

• The team at Mairs & Power Growth

• John W. and John C. Thompson at Thompson Plumb Growth

Large value

• The team at the Clipper Fund
Total: 5

• The team at Dodge & Cox Stock
Total: 4

Mid-cap growth

• John P. Calamos, Nick P. Calamos, and John P. Calamos Jr. at Calamos Growth A
Total: 8

Small growth

• Samuel Stewart Jr. at Wasatch Core Growth
Total: 12

Moderate allocation

• The team at Dodge & Cox Balanced
Total: 5

• Stephen W. Boesel (only 2.3 years) at T. Rowe Price Capital Appreciation
Total: 4

U.S. Specialty funds

• (Robert N. Gensler (only 3.8 years) at T. Rowe Price Media & Telecom
Total: 6

Foreign stock

• William Bower (only 2.6 years) at Fidelity Diversified International
Total: 7

• Richard C. Pell and Riad Younes at Julius Baer International

• W. George Greig (7.3 years) at William Blair International Growth

World allocation

• Charles de Vaulx and Jean-Marie Eveillard at First Eagle Global A
Total: 8

We'll skip managers of bond funds — although no one has a lower record than the records above.

And so the overall winner is ... the team at Mairs & Power Growth managed by William B. Frels (3.9 years) and George Mairs III (23.9 years).

The fund, which is no-load, is doing only average this year, and Mairs is expected to retire soon. For details, call (800) 304-7404.

Tied for second place, with slightly-less-than-perfect totals of 4, are Thompson Growth and Dodge & Cox Stock. Both are 1 percent, 1 percent and 2 percent.

What if we included a fund's one-year ranking in our contest? Then the winner would be David Williams of the Excelsior fund.