What if you had spotted the investing prowess of a Thyra Zerhusen a decade ago, or a Warren Buffett 50 years ago? It's easy to single out the world's greatest investors when they've been trouncing the markets year after year -- and then decade after decade. It's far trickier to identify the next generation of great investors. Yet if you staked all your chips on money managers late in their career, you'd miss out on decades of super returns. The average age of the hotshots profiled here is 39 -- and their average tenure running a fund is just over six years -- but all told, they manage $200 billion in their flagship funds and other portfolios. All have landed in the top 5 percent of their Morningstar fund categories in recent years.
Naturally, when one bets on money managers with fewer gray hairs, it's all the more difficult to predict how they'll perform in an ever-changing investment climate. But one way to improve the odds, says Russel Kinnel, Morningstar's director of mutual fund research, is to find those who have come up through the ranks at venerable fund companies and learned from the best. For prime examples, consider Wendy Trevisani and Lei Wang, who comanage the Thornburg International Value fund with the 71-year-old William Fries, one of the all-time notable stock pickers. Or consider Michael Hasenstab, who sharpened his bond-investing skills at well-regarded Franklin Templeton. Hasenstab has been making billion-dollar bets on a near-weekly basis for years -- and, ahem, he's only 38 years old. Now that would seem to be the foundation for a great investing legacy.
Templeton Global Bond (TPINX)
In His Sights Now:
Bonds from countries with low debt, like Norway and Poland.
After a stint as a high school exchange student in Beijing in 1991, Michael Hasenstab headed east again in 1998 to get a Ph.D. in economics in Australia -- just as a currency crisis was roiling much of Asia. His dissertation topic: the development of China's financial markets. Although economies in the region were crumbling at the time, he saw their potential. Fast-forward 13 years and we find the 38-year-old fixed-income manager worried about European sovereign debt and ultralow interest rates in Japan. Although emerging-market bonds have been on a tear, he thinks they are still undervalued in fast-growing economies like China and Korea. He particularly likes Australia, the nation his mother hails from. He expects the Australian dollar, which early this spring surpassed the U.S. dollar, to keep climbing, because of relatively low government debt, high interest rates and strong commodity exports. "It isn't just rising because the U.S. dollar is falling," he says. "This is genuine currency appreciation."
Hasenstab began comanaging the Templeton Global Bond fund a decade ago and took over as sole manager in 2006. The $52.1 billion fund has been in the top 1 percent of world bond funds during his tenure, with average annual returns above 12 percent. Not all his calls have been quite so prescient. Notably, he decided to short the Japanese yen last year, only to see it rally against the dollar. (He continues to believe that the yen will weaken over time: "Japan can't lower interest rates any more," he says, "so they will have to print more money.") Hasenstab, meanwhile, sold the last of his Treasury bonds five years ago and has trimmed his exposure to Europe; he's now focusing only on countries with low government debt and robust exports, such as Norway and Poland.
Photograph by Timothy Archibald for SmartMoney
Wendy Trevisani + Lei Wang
Thornburg International Value (TGVAX)
In Their Sights Now:
Companies poised to benefit from China's hungry consumers.
Wendy Trevisani and Lei Wang like to think of themselves as "global generalists." That's what attracted them to Thornburg Investment Management, a quirky Santa Fe, N.M., fund company. As comanagers of the $28.7 billion Thornburg International Value fund, they have the freedom to look anywhere on earth for a promising investment -- whether it be a Danish drugmaker or a Chinese oil driller.
Trevisani and Wang, who both recently turned 40, began at Thornburg as summer interns. William Fries, the firm's legendary value investor, was so impressed with their "curious, open minds" that he lured them back after they got their MBAs. They have comanaged the international fund with Fries for the past five years -- when the portfolio returned more than 5.5 percent a year on average, putting it among the top 3 percent of foreign large-cap funds.
Wang -- who goes by the nickname "Rocky," because the Chinese character for his name is a picture of three stones -- grew up in Shanghai. He has introduced a number of Chinese stocks to the portfolio, including Hong Kong Exchanges & Clearing and CNOOC, essentially the Exxon Mobil of China. Trevisani was the only member of her family not to pursue a medical career, so it is perhaps fitting that she digs deep into health care stocks. It was she who discovered one of the portfolio's largest holdings, Novo Nordisk, which makes drugs to treat diabetes, a disease that is growing rapidly around the world. That's not to say they haven't tripped up along the way; both managers have held on to stocks long after they started to swoon. Trevisani says the fund owned Nokia, the Finnish cell phone maker, while the share price dropped 65 percent from its peak; Wang clung to a Chinese property developer, Country Garden, during the financial crisis, when buyers were walking away from its properties. The pair, in general, take a flexible approach to value investing. Says Trevisani, "We're willing to pay up for premium companies."
Photograph by Jared McMillan for SmartMoney
Waddell & Reed Advisors New Concepts (UNECX)
In Her Sights Now:
Automotive stocks -- global car sales will rise, she says.
With 10 years at the helm of a stock fund -- the $1.6 billion Waddell & Reed Advisors New Concepts fund -- Kimberly Scott, 51, has a bit more seasoning than the other fund slingers on our list. Which is to say, she's been around long enough to weather not just one great bear market, but two. After years of toiling in obscurity as a stock analyst, Scott got her start managing money in early 2001 -- amid the fallout of the bursting of the dot-com bubble. As a technology analyst, she had already been skeptical of many of the Nasdaq highfliers and was quick to dump the most vulnerable tech stocks in her new portfolio. But then Scott stayed on the sidelines too long, she admits. (Around 10 percent of the fund was in cash when stocks started zooming in early 2003.) Eventually, though, she would get the chance to learn from that mistake: When the recent great bear market ended in early 2009, she jumped back into the market with more alacrity. Through these past 10 years of boom and bust, indeed, her fund has averaged annual returns above 6 percent.
When it comes to stock picking, Scott often takes inspiration from the home front. Her daughters shop at the trendy retailer Lululemon, watch movies on Netflix and eat at Chipotle Mexican Grill. Now all three companies are in the portfolio she manages. Still, not all her picks are so trendy. Take, for example, the unloved automobile industry, where Scott is hot on lesser-known names like Harman International Industries, a Stamford, Conn., manufacturer of car audio systems, and Polypore International, a Charlotte, N.C., engineering firm that makes a component of electric car batteries. "We look for companies that are solving problems," she says.
Photograph by Kenneth Ruggiano for SmartMoney
Fidelity Small Cap Discovery (FSCRX)
In His Sights Now:
Japanese stocks -- "It's crazy how undervalued they are."
Chuck Myers established his investing chops even before collecting his high school diploma. As an 18-year-old senior, he took second place in a nationwide investing competition for adults. Although he was phoning in "paper trades" for a phantom brokerage account in that competition, in real life he was already trading stocks in his college savings account.
Now 35 years old, Myers recently wrapped up his first five years managing the $1.9 billion Fidelity Small Cap Discovery fund. He has turned a lot of heads straight out of the gate, with average annual returns above 9 percent -- putting the value-oriented investor in the top 2 percent of small-cap stock managers. That's despite a rough patch early in his tenure, in late 2007, when he lagged most of his peers. What's changed? He sought out some wise counsel. Myers, who had been putting too much weight on a few stocks and sectors, sat down with some mentors at Fidelity who helped him learn how to construct a less top-heavy portfolio.
What Myers has seemed to need less advice on is how to spot a bargain. Ginger-haired and effervescent, the manager can barely sit still while describing why he is drawn to the investing world's small fry. Smaller companies, he says, are "more agile" and have the capacity, at least, to grow exponentially in size. "How can you double Microsoft?" he asks. Right now nearly all his attention is on companies here in the U.S.: 96 percent of his portfolio is in domestic stocks. He's investing the remainder in Japan. Myers thinks it's "crazy" how undervalued Japanese equities are, particularly small consumer stocks. "It has got to be extreme for me to get on a plane and fly 15 hours to Tokyo," he says. "But I've been there."
Chad Meade + Brian Schaub
Janus Triton (JGMAX)
In Their Sights Now:
Firms with what these managers call "proprietary data."
Chad Meade, left, and Brian Schaub began their financial careers as stock analysts a decade ago, in the depths of the dot-com bust. "It was an extremely challenging time" to start one's career, says the 33-year-old Schaub. But that experience, he says, persuaded the investing duo to focus on stocks with a "sustainable competitive advantage" in their industries.
That strategy has stood them well over the five years they've comanaged Janus Triton. During their tenure, the fund has returned more than 11 percent a year on average, ranking it among the top 1 percent of small-cap growth-stock funds. That is despite losing 40 percent in 2008, in line with other funds in the same investing category. The stocks in Triton's $1.9 billion portfolio generally have a higher debt level than the category average, cautions Morningstar analyst Kathryn Young, which might make them more vulnerable in a punishing market. (Schaub says that debt "used appropriately and in moderation can be a good thing for equity holders.")
Notably, once they find a stock they like, they stick with it -- often holding on to small-fry firms even as they grow into midsize ones or until their market capitalizations reach $10 billion. Compared with its fund peers, Triton has low turnover, with an average holding period of three to five years. Says the 34-year-old Meade: "We think of ourselves as investors, not traders."
Photograph by Bryce Boyer for SmartMoney