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Friday, January 04, 2008

Mutual Fund Oscars

The best mutal fund performance of 2007

Morningstar Singles Out
Fidelity's Danoff on Stocks,
Pimco's Gross on Bonds

Two well-known mutual-fund managers who steered clear of the subprime-loan downturn in 2007 and delivered impressive returns to stock and bond investors received honors yesterday from investment researcher Morningstar Inc.

Will Danoff, of Fidelity Contrafund, one of the country's biggest mutual funds, and the smaller Fidelity Advisor New Insights Fund, was named Morningstar Domestic Stock Fund Manager of the Year.

[Will Danoff]

Meanwhile, Morningstar's Fixed-Income Manager of the Year went to Pacific Investment Management Co.'s Bill Gross. His team running Pimco Total Return and Harbor Bond Fund has won the award three times. Pimco is a unit of Allianz SE.

Separately, Hakan Castegren, lead manager at Harbor International Fund, was selected International Stock Manager of the Year, an award he won also in 1996. The foreign large-cap value fund returned 21.8% in 2007, topping 96% of its class, Morningstar said.

Mr. Danoff led the $80.8 billion Contrafund to a 19.8% gain in 2007, topping its large-cap growth category average by more than six percentage points, according to Morningstar.

Technology stocks worked especially well in 2007 for the fund, which is closed to new investors. Mr. Danoff pointed to top performers including Research In Motion Ltd, Google Inc. and Apple Inc.

"Avoiding financials was a big win, as well," Mr. Danoff said. "When I saw many of the issues financials were wading through, I stepped back."

If markets decline in 2008, he adds, Contrafund's team will likely use it as an opportunity for long-term-minded shareholders to buy into companies with strong fundamentals and top management.

[William Gross]

Mr. Danoff says another key performer in 2007 was the fund's investment in energy and materials sectors. "Those turned out to be very good this year, and that really helped the fund's returns," he added. "And with decent demand coming out of emerging markets, prices continue to be strong."

Morningstar gives awards to managers each January based on strong investment performance in the previous calendar year, superior long-term results, and a proven commitment to investors in their funds.

"All of this year's winners made real money for investors this year as well as over longer periods," said Christine Benz, director of mutual-fund analysis at Morningstar. "These are all very consistent performers."

She noted that Mr. Danoff's Contrafund dropped 10% in 2002 versus the broader market's 22.1% loss. During the past 10 years, the fund's average annualized return of 10.7% tops 96% of its large-cap growth rivals, Ms. Benz added.

"It was a $30 billion in assets-under-management fund," Ms. Benz said. "Danoff's record has built quite a following over the years."

Morningstar emphasized that its international award in 2007 went to the team Castegren leads, which includes analysts at asset manager from Boston-based Northern Cross International Investment Management.

"The team has shown a lot of patience in looking for bargain stocks," Ms. Benz said. "He's very long-term focused and has been on the fund for 20 years. This is another large fund, with $27.2 billion in assets and very stable management."

Meanwhile, Mr. Gross is one of the most-respected bond-fund managers in the business, she added. "He's our only three-time winner," Ms. Benz said. "He's a manager who isn't afraid to take bold stances when he and his team thinks it will profit investors over the long term."

For example, in 2006, long before anyone else was worried about a downturn in housing, Mr. Gross moved to shield his portfolios from a downturn, Ms. Benz said. "At first, that led the fund to look out of step with its intermediate bond-fund peers," she added.

Still, Pimco Total Return was able to put up results close to the category's average. "But that was relatively weak for such a strong long-term performer," Ms. Benz said. "It's not typically an average, run-of-the-mill type of bond fund."

In 2007, bets by Mr. Gross and his team paid off. In the year, it posted a preliminary 9.1% total return versus 4.7% for its peer group.

In addition to this year's bond-fund manager of year award, Mr. Gross won for the same category in 1998 and 2000.

"It has been an honor and a real team effort in each of those years, especially in 2007," Mr. Gross said. "Our success came from avoiding the subprime debacle and taking advantage of the policy moves, namely the Fed cuts, that emanated from it."