11 Solid Funds Run by Veteran Managers

We haven't seen the economy unravel like this since the Great Depression. The downturn that started in the housing market and quickly spread to every corner of the investing world is truly a once-in-a-generation calamity.

But even though a downturn like this only comes along every century or so, there are vicious bear and glorious bull markets in between. Indeed, there are managers who were around to witness the tech boom and bust, Black Monday, the junk bond craze, the spike in oil prices during the 1970s and the demise of red-hot Nifty Fifty growth stocks almost 50 years ago. That’s one reason why financial advisors stress tenure when they analyze mutual funds. They want somebody running their money that has been in the trenches -- and survived.

This week we're focusing on managers who have been running their funds for over 10 years. This is a select bunch. Of the almost 22,100 funds and share classes listed in our fund screener tool, only 1,823 meet that initial criterion. We narrowed that group by looking for funds with low fees, above-average performance over the long haul and a track record that put them ahead of the 12.6% deficit S&P 500 index funds have racked up in 2009. That left us with 11 equity funds (see table below). One note: Since this screen focuses on experience, we included load funds.

There is a drawback to this approach. Although hiring a seasoned pro to manage your money sounds smart, it's no panacea for market-beating performance. Academic studies have shown that experience can impact performance, but it isn't always a saving grace. In other words, the stock market doesn’t care if a manager has 20 years on the job or two -- a bad pick is a bad pick. To find proof of that, just look at funds like Legg Mason Value Trust (LMVTX) or Dodge & Cox Stock (DODGX). These offerings, run by legendary managers, find themselves uncharacteristically in the basement of their categories after some bad bets.

“Tenure is something we look at but it isn’t the most important thing,” says Jeff Layman, chief investment officer at BKD Wealth Advisors in Springfield, Mo. “Dodge & Cox has gotten annihilated, but does that make a style that has worked for them for 50 years invalid?” No, he says.

Another problem with tenure is that proven managers tend to become quite popular. His employer may want to attach his name to other funds to attract investors or a competitor may try to woo him away.

In that first scenario, shareholders need to weigh whether the manager is being spread too thin. Think about it: Managing one fund is a full-time job. Will they really be giving a second or third fund their full attention?

The second situation forces investors to weigh a manager's tenure against a manager's experience.  We define tenure as when a manager has been running the same fund for a long time. But managers move around -- sometimes to another fund within the same company or to another one at a new employer. That manager may not have tenure, but he still has plenty of experience. However, he won't make our cut. (One note: Because of the way Lipper collects tenure data, if a fund company adds a manager to a fund the database may not default to the experienced stock picker's record, even if he has stayed put.)

Of course, tenure can work in investors' favor. The funds on our list charge an average 1.16% a year in fees, about 30% less than our typical cut-off. The managers, who've been on the job anywhere from 11 to 18 years, are beating the broad market over the long term and in 2009, too.

While we don't have a problem recommending any of the funds on this list (at least as part of a diversified portfolio) we do favor a few of them. For international exposure, it's tough to beat Thornburg International (TGVAX), a load fund that ranks in the top 3% of its Lipper classification over the last decade. FBR Focus (FBRVX) has historically been a good fund for small- and midcap exposure. And for an all-around offering for the core of their portfolios, investors will be well-suited with Permanent Portfolio (PRPFX). "It has excelled in recent bull and bear markets," says Morningstar's Ryan Leggio.

The Criteria: The funds on our list have managers who have been in place longer than 10 years. They are open to new money, charge an annual expense ratio less than 1.5% and require a minimum investment under $5,000. Their performance track records over the trailing three- and 10-year time periods put them in the top 5% of their peer groups. They also happen to be beating the S&P 500 in 2009. Since this screen is focusing on manager experience we included load funds this week.

* Screen only includes equity funds