Posted on: Thursday, January 16, 2003

Top fund managers limited '02 losses

By Hope Yen
Associated Press

NEW YORK — As many investors turn to experts for guidance in a shaky stock market, Morningstar Inc. is making recommendations that might surprise some — fund managers with stock portfolios that posted negative returns in the past year.

The Chicago firm announced its 2002 fund managers of the year in the U.S. stock, foreign stock and fixed-income categories. Only the fixed-income funds finished the year with positive returns.

The winners were Joel Tillinghast of the $15.5 billion Fidelity Low-Priced Stock Fund; Rudolph-Riad Younes and Richard Pell, of the $833 million Julius Baer International Equity Fund; and the 11-member management team behind the $1.9 billion Dodge & Cox Income Fund.

It was the first time in Morningstar's 16-year history of issuing the awards that managers with losing returns were cited.

"2002 was one of the most challenging years for mutual fund managers — but one where rigorous analysis and disciplined investing paid off," said Russ Kinnel, Morningstar's director of fund analysis.

Given the fact that the vast majority of funds lost money last year, "we wanted to recognize that a lot of great work is being done by people who were limiting losses rather than completely avoiding them," he said.

Tillinghast has been manager of the Fidelity Low-Priced Stock Fund since its 1989 launch, investing in nearly 900 stocks of smaller companies with good earnings prospects.

Although the fund lost 6.2 percent in 2002, its first ever annual decline, it still beat the 16 percent negative return for its average peer in the small-cap blend category. Over 10 years, the Fidelity fund was Morningstar's top performer with a 14.2 percent return, beating the Standard & Poor's 500's return of 4.9 percent over the same period.

"Steadiness has meant that Tillinghast has been a perennial runner-up for the award because he rarely posts monster returns," Kinnel said. "Yet, when we look back at the fund's long-term performance, he dwarfs the competition."

The Julius Baer International Equity Fund, led by Younes and Pell since 1995, has been willing to make big changes in their sector and country stakes, serving them well during both bull and bear markets, according to Morningstar.

In 1999, for example, the fund's large holdings in technology and telecommunications shares helped rake in a 76.6 percent return. But the managers quickly changed their stakes in the following years, helping to minimize losses when those sectors fell. In 2002, it had a negative return of 3.6 percent, compared to the average foreign stock fund's negative return of about 16 percent.

Over five years, the international fund outperformed its average peer with a return of 10.5 percent.

"They aren't speculative momentum investors. They managed to stay one step ahead of the markets," Kinnel said.