Investors in actively managed mutual funds all have one thing in common: the hope that their manager will beat the market. That is particularly true among investors who trust their money to managers boasting reputations as shrewd stock pickers.
Lately, conditions have been quite favorable for stock investors. For instance, between the start of 2012 and May 24 of this year, the Standard & Poor's 500 index gained more than 30 percent.
As the market reaches new highs, U.S. News checked in on how well six all-star fund managers are navigating the current environment. All six have gained fame for establishing a track record of picking winners. But have they been keeping up with the market as of late? Here's the rundown:
Don Yacktman (Yacktman Fund). Although Yacktman is now considered one of the mutual fund industry's most talented managers, it hasn't always been that way. There was a time when even his own board of directors wanted to oust him as the manager of his flagship Yacktman Fund. That happened in the late 1990s when Yacktman, despite enjoying tremendous success earlier in his career, seemed to have lost his touch. In the aftermath of the failed bid to unseat him, Yacktman has posted stellar returns. During the recent bull market, his fund's performance has been steady, but as of May 24, the Yacktman Fund's three-year returns trailed the S&P 500 by an average of 0.79 percentage points per year. Ultimately, this fund has worked best for investors willing to stay put for the long haul. Yacktman will sometimes have off years, as he did in 2012, but the fund's long-term numbers speak for themselves: Over the trailing 15-year period, the fund has beaten the S&P 500 by an average of 4.82 percentage points per year.
Bruce Berkowitz (Fairholme Fund). For a long time, Berkowitz seemed to be as close to infallible as any mutual fund manager the industry has ever seen. But then 2011 came along. That year, Fairholme shed 32 percent. Since then, however, the fund has taken full advantage of the bull market. Coming off its losses, the fund smoked the competition in 2012, beating the S&P 500 by nearly 20 percentage points. Meanwhile, as of May 24, the fund was up 20.83 percent in 2013. That's more than four percentage points better than the S&P 500. The fund's good fortune during the recent market surge is attributable largely to its mammoth stake in AIG, whose strong returns have bolstered its performance. As of the end of February, the fund had more than 40 percent of its portfolio invested in AIG. Although that bet has worked out well recently, AIG was also responsible for the fund's terrible performance in 2011.
Bill Miller (Legg Mason Opportunity). Like Yacktman, Bill Miller once had the floor fall out from beneath him. Between 2006 and 2008, Miller's Legg Mason Capital Management Value fund finished each year in the bottom 3 percent of Morningstar's large-cap blend category. In 2008, the fund lost more than 54 percent. That was quite the losing streak for a man who had beaten the S&P 500 for 15 consecutive years prior to 2006. Miller is no longer at the helm of Legg Mason Capital Management Value, but since 1999, he has been a manger of the Legg Mason Opportunity fund. Like Legg Mason Capital Management Value, Legg Mason Opportunity had a brutal 2008, losing more than 65 percent. In 2009, though, the fund gained an astounding 83 percent. After some additional struggles in 2010 and 2011, the fund has regained its footing during the recent bull market. Last year, for instance, Miller beat the S&P 500 by more than 23 percentage points. Meanwhile, through May 24, the fund had an advantage of nearly 18 percentage points over the S&P 500 in 2013.
Chuck Royce (Royce Pennsylvania Mutual). Royce has long been one of the most trusted names in small-cap investing. Royce Pennsylvania Mutual is his flagship fund, and he's been on its management team since the fund's inception in 1972. Recently, however, the fund has disappointed investors, failing to keep up not only with the broader market, but also with its small-cap competition. As of May 24, the fund was up 12.7 percent in 2013. That put it 2.7 percentage points behind the average for Morningstar's small-growth category and nearly 4 percentage points behind the S&P 500.
Chuck Akre (Akre Focus). Akre is a patient, tactical investor who sometimes likes to sit on the sidelines and stockpile cash until the timing seems right and he finds a company he likes. Recently, he's found a lot of those companies, particularly in the financial services sector. His positions in Moody's Corp., LPL Financial and TD Ameritrade have been particularly lucrative, and they help account for the fund's top-notch performance in 2013. As of May 24, the fund was up nearly 21 percent year to date. That's good enough to beat out both the S&P 500 and the average for Morningstar's mid-cap growth category by solid margins.
Will Danoff (Fidelity Contrafund). At the helm of the Fidelity Contrafund, Will Danoff has become one of the industry's most trusted pickers of blue chip stocks. The fund's portfolio has traditionally been packed with some of the investing world's most popular names, including Google, Coca-Cola and McDonald's. During the recent market surge, the fund has trailed the S&P 500, but that's not altogether surprising given the fund's blue-chip focus. As of May 24, the fund's trailing three-year returns lagged the S&P 500 by an average of 0.68 percentage points per year. Moreover, Apple's struggles have held the fund back a bit recently. Nonetheless, Contrafund rarely has blockbuster years. Danoff has shown over the years that given time, he can beat the market. But if you're looking for a fund that will take full advantage of a market rally, this isn't your best bet.