Funds for the Long Haul
These managers have stood the test of time for their investors
Three strikes and you're out. Investors might be forgiven for taking that advice after three consecutive down years in the market. But didn't your mother advise you that patience is a virtue? And, as long-time mutual-fund managers like Chuck Royce have proved, losing money occasionally is part of the job of investing for the really long term. Who knows where the market will end 2003? We don't, although stocks have begun the year on a positive note, spurred in part by anticipation of the $674 billion tax cut and economic stimulus plan President Bush unveiled last week. But what's clear is that if you're serious about staying the course, there are few better fund managers than the ones profiled here. And they'd be the first to tell you that opportunity is still out there amid the ravages of a three-year bear market. These men have had their bad years, for sure, losing more than a quarter of their portfolios in some cases, but the good years have outnumbered the bad by far, allowing these managers to post average annual returns that have beaten the overall market over the past three decades. Mutual fund companies are obliged to warn investors that past performance is no guarantee of the future--a message that apparently did not sink in with the masses who poured money into hot tech funds during the great bull rush--but is there any better measure of the likelihood of future success than looking at someone's long-term record of managing money?
These funds run the gamut of investing style and approach, from those that focus on small domestic companies to those that dabble in precious metals, downtrodden foreign equities, and even bonds when the times call for it, as they did last year.
PENNSYLVANIA MUTUAL
MANAGER'S BEST YEAR: 1975; up 121.1 pct.
MANAGER'S WORST YEAR: 1973; down 48.5 pct.
Chuck Royce sure picked a lousy time to become a mutual fund manager, taking over the Pennsylvania Mutual fund in late 1972. His first year out, the fund lost nearly half its value. But when you take a longer view--say, 30 years--Royce's stock-picking acumen seems pretty sharp. The fund, part of a group devoted to stocks of small and very small companies, has returned an average of 12.21 percent annually over the past three decades, despite a 9.22 percent loss last year. "The early '70s were personally a disaster," says the New York-based Royce, 63, who favors a value-oriented approach to picking stocks. "It all came out of a near-death experience."
Like most value-fund managers, Royce prefers to buy companies whose shares are trading at a discount from what might be their intrinsic worth. But price is not where Royce starts shopping. Rather, he says, "We're looking for sustained returns on capital." To determine that, he and his staff pore over company reports and meet daily with a half a dozen or so management teams. "We want to understand how they make the money," he says, and "what are their vulnerabilities."
Modesty prohibits the bow-tied Royce from touting his long-term accomplishments, but Morningstar gives the fund a five-star rating, noting that it is far less volatile than other small-company funds. "Simply said, Charles Royce has gotten the job done for `patient' investors," noted mutualinvestor.com Editor Steve Wagner last year.
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