The Markets January 6, 2009

Morningstar Picks Fund Managers of the Year

Morningstar said its 2008 fund manager winners demonstrate proven strategies by experienced teams, rather than “trend-chasing.″
Reported by

To recognize the best fund managers each year, Morningstar selects leaders in three asset classes—domestic stock, international stock, and fixed income. Morningstar said in a news release the winning domestic and international stock fund managers were able to enhance their long-term records by minimizing losses and maintaining their rigorous approaches to stock-picking. The winning fixed-income fund managers—one of whom is now a three-time honoree—managed a gain for shareholders.

The Fund Manager of the Year winners for 2008 are:

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

  • Domestic-Stock Fund Manager of the Year: Charlie Dreifus for Royce Special Equity (RYSEX)
  • International-Stock Fund Manager of the Year: David Samra and Daniel O’Keefe for Artisan International Value (ARTKX)
  • Fixed-Income Fund Manager of the Year: Bob Rodriguez and Tom Atteberry for FPA New Income (FPNIX).

“2008 was such a challenging year for fund investors and managers,” said Russ Kinnel, director of mutual fund research for Morningstar, in the release. “We have seen how crucial it is for managers to be able to successfully limit investors’ losses. For example, Domestic-Stock Fund Manager of the Year Charlie Dreifus lost 19.6% in 2008, whereas the market as a whole lost 37%. Despite these losses, he has made it a lot easier for investors to get back into the black than many of his peers.”

The Managers

Royce Special Equity, a Morningstar Analyst Pick, is well known as a strong performer in bear markets, Morningstar said. Dreifus moderates risk by investing in companies with clean accounting and strong balance sheets. Dreifus focuses on stocks trading at high discounts to their intrinsic fair values, with high returns on invested capital and plenty of cash on hand. The fund scores a Stewardship Grade of “A,” due primarily to its low fees, investor-focused corporate culture, and managers with significant investments in the fund. Although the fund closed to new investors in March 2004, it reopened in June 2006.

Samra and O’Keefe came to Artisan Partners in 2002 to launch Artisan International Value, a Morningstar Analyst Pick. They have admirably steered the fund through the turbulence of 2008: although the fund lost 30.1%, the average foreign small/mid-value fund fell 46.9%, according to Morningstar. The managers pay little attention to how their peers are investing, or to indexes like MSCI EAFE and the MSCI EAFE Value. Instead, Samra and O’Keefe look for companies trading at significant discounts to their estimates of the stocks’ values, with high returns on invested capital, healthy free cash flows, and strong balance sheets. Their rigorous screening process results in a portfolio of about 50 stocks, which is more concentrated than its average peer.

Morningstar also offered full disclosure: O’Keefe was a fund analyst at Morningstar in the mid-1990s.

Rodriguez began sounding the alarm about careless mortgage lending practices a few years ago, and in the summer of 2007, he criticized the big credit rating agencies for doling out high ratings to risky mortgage-backed securities, Morningstar said. In 2008, these warnings became reality as credit markets tightened and their prudent approach helped investors enormously: in 2008, FPA New Income trounced its peers with a 4.3% gain. In fact, the fund hasn’t suffered a calendar-year loss since Rodriguez took the reins in 1984, a long-term record of success that has made the fund an Analyst Pick.

Morningstar said the fund has a big cash stake, and Rodriguez and Atteberry won’t buy high-yield bonds until they think investors are adequately compensated for the risks in that market. The fund also doesn’t track a broad market index—unlike many of its peers—and instead seeks the best values across all sectors. The fund’s strong corporate culture, forthright shareholder communication, and low fees contribute to its “A” Stewardship Grade.

Rodriguez received Morningstar’s Fixed-Income Fund Manager of the Year honor in 2001. In 1994, before Morningstar separated the award into three asset classes, Rodriguez was named Morningstar’s Fund Manager of the Year.

Runners-Up

According to Morningstar, several other names were among the strong field of contenders for the 2008 Fund Manager of the Year awards: Bob Goldfarb and David Poppe of Sequoia Fund (SEQUX) were runners-up for the Domestic-Stock Fund Manager of the Year. The runner-up for International-Stock Fund Manager of the Year was Jean-Marie Eveillard of First Eagle Overseas (SGOVX). Bill Gross and team, PIMCO Total Return Bond (PTTRX) and Harbor Bond (HABDX), were runners-up for the Fixed-Income Fund Manager of the Year award. Gross, who most recently won the award in 2007, is a three-time winner of Fixed-Income Fund Manager of the Year.

The Fund Manager of the Year award winners are chosen based on Morningstar’s proprietary research and in-depth evaluation by its fund analysts. All figures cited in this story are preliminary, year-end figures and are subject to change.

More information is available here and a complete list of past and present winners is available here.

The Markets January 6, 2009

Prudential Pushes for Guaranteed Products, Auto-Enrollment

In keeping with trends across the industry, Prudential Retirement saw participants in its plans moving away from equities in the latter part of 2008.
Reported by

At a press briefing Tuesday, Prudential panelists noted the effect the financial crisis is having on the retirement industry at the participant, plan sponsor, and regulatory level. Amid the crisis, Prudential is continuing to encourage its plan sponsor clients to look more toward auto-enrollment and guaranteed income products within 401(k) plans.

As other recordkeepers have reported, one of the largest changes on the participant level is a record number of calls and Web site logins (see “Time to Be Bold, Says T. Rowe Price Retirement Head“ and “Schwab Finds Participants Paying More Attention“). So, while more participants are taking interest in their retirement savings, more participants than usual are also changing their asset allocation in a way that could have a negative effect. “It’s certainly understandable, but not the right thing to do,” said Jamie Cornell, senior vice president and chief marketing officer at Prudential Retirement.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

Cornell also told PLANADVISER.com he is seeing more plan sponsor clients who want a financial intermediary. “The role of the financial adviser is dramatically increasing, not only to help the participants … but also to help plan sponsors making decisions about plan design,” he said.

Participant Rates Steady

So far, Prudential can report that hardship withdrawals and loans have come back down to normal rates after spurting up in 2008—however, future layoffs could cause those rates to go up again, Cornell predicted. He also said participation rates are not seeing any dramatic declines—noting, however, that participate rates across the industry are still not where they should be. He said Prudential sees the trend toward auto-enrollment and auto-increase of deferral rates as “an important step forward.” Prudential is encouraging its plans to both auto-enroll and re-enroll participants.

Cornell said recent match suspensions and changes at even some large companies such as Motorola and NCR (see “NCR Reduces 401(k) Match” and “Motorola Freezes Pension, Suspends 401(k) Match“) could potentially have a negative effect on participation. Although it might not cause current participants to suspend contributions, it could very well discourage new participants, such as younger workers and minorities, he said.

Guaranteed Income

Prudential would like to see more guaranteed income products within retirement plans, such as its own IncomeFlex product, which embeds an annuity within a 401(k) plan (see “The Inside Story“). Cornell said in the future he expects to see more companies putting guarantees within target-date funds.

Cornell suggested that guaranteed income products within target-date funds will enable retirees to have exposure to equities while also securing a guaranteed income stream. As Ed Keon, managing director at Quantitative Management Associates, Prudential’s equity index investing business, put it, “Baby Boomers like to have their cake and eat it too.” The question remains as to what percentage of assets should be placed in a guarantee. Also, the amount of equity exposure retirees should have depends on the individual, Keon said, but the answer is “something over zero.”

Changing Retirement Landscape

Americans had gotten used to retiring at age 65, but that notion is changing. Keon said that Baby Boomers working longer will be good for the economy, but it will also create conflicts for the workforce as it adapts. Furthermore, it will create some conflict for advisers, because a key point of advice they provide is when a client should retire, Keon said.

Policymakers will likely have much more to say about retirement. Cornell predicts that policymakers will be looking more toward guaranteed income—more specifically, lawmakers might provide greater clarifications to the Pension Protection Act about how guaranteed income can be used within qualified default alternative investments (QDIAs). We might also eventually see mandates to provide guaranteed income, he said.

The recent legislation about required minimum distribution requirements is one step toward what Cornell believes will be a busy year, he said (see “Bush Signs RMD, Pension Relief into Law“).

«