10 now leading for domestic-fund manager of year

THE BALTIMORE SUN

The year is half over and we've already got double-digit gains. Taking a look at early candidates for domestic-stock fund manager of the year, I found scores of worthy candidates - unlike in the past couple of years, when only a few funds had decent gains amid the dot-com carnage. I came up with a list of 10 particularly appealing front-runners so far.

I'm not actually narrowing the field, but it's interesting to see who's in the lead at the halfway point. When I wrote about front-runners last year all three winners were mentioned, but the previous year I missed one of the three.

Our manager of the year award goes to managers who produce great single-year results and great long-term results. We want managers who made a lot of money for investors and proved to be shareholder-friendly. I screened for funds that had produced top-quartile returns for the year to date and for the trailing five years.

David Williams, Excelsior Value & Restructuring (UMBIX): David Williams is crushing the S&P; 500 index this year with a 22.62 percent gain through July 8. That's nothing new, he's beaten the index in eight of the past 10 years. Williams runs a bold fund that, as the name suggests, targets restructuring plays that are undervalued. When he finds attractive stocks, he's willing to put a lot of chips on the table - e.g., his current bet on consumer goods stocks Kraft and Harman International.

Herbert Ehlers, Heritage Capital Appreciation A (HRCPX): Ehlers buys companies that throw off a lot of free cash flow and then he holds on for a long time. He has a massive 40 percent bet on media stocks such as Viacom (VIA.B), and that has worked quite well over time. The fund's returns rank in the top 10 percent over the trailing three-, five- and 10-year periods.

Harry Lange, Fidelity Capital Appreciation (FDCAX): Lange was one of the few managers at Fidelity to anticipate the rebound in technology stocks. A former tech analyst at Fidelity, Lange has shown a knack for getting in and out at the right time. Lange's is one of the few growth funds to beat its peers during the bear market and so far in the rebound of 2003. With a 30.59 percent return, this fund is making a strong case for itself.

Rob Lyon et al., ICAP Select Equity (ICSLX): Rob Lyon and the team at ICAP are riding consumer services stocks and media companies to big gains this year. This concentrated fund is running way ahead of other large-value funds for the current year and the trailing five years, yet few investors have discovered the fund. The core strategy here is a fairly typical emphasis on valuations and catalysts, but its concentrated formula and strong execution make it stand out.

Bill Miller, Legg Mason Value Trust (LMVTX): He's back. Fallen growth angels such as Nextel and Amazon.com have boosted the fund to 28 percent gains this year. In order to beat the S&P; 500, Miller believes, a manager has to be willing to own stocks that are so controversial that insecure managers are running away. Thus, you have controversial companies such as Tyco and controversial industries such as wireless phones in the form of Nextel in Miller's top five.

Richie Freeman, Smith Barney Aggressive Growth A (SHRAX): Maybe the most patient growth investor there is, Richie Freeman looks for mid-caps with the potential to produce steady but above-average growth for many years to come. This year the fund has been powered by biotech names such as Amgen, Genzyme and Imclone. Over the past 10 years the fund has returned an annualized 15.76 percent. It makes you wonder why other growth funds are trading so much.

Vanguard Primecap (VPMCX): The Primecap crew is having a killer year with returns of 20.69 percent thanks to a diverse array of the sort of contrarian growth stories that are the fund's bread and butter. The managers have got Southwest Airlines, Guidant and Adobe in their unusual portfolio. They're also having a great year at Vanguard Capital Opportunity (VHCOX). Their 10-year returns are running more than 4 percentage points ahead of the S&P; 500 per year.

Chuck Freeman et al., Vanguard Windsor (VWNDX): I would have guessed that a deep-value fund like this one was due to cool off after a nice three-year run, but I'd have been wrong. What's particularly interesting is that strong returns reflect across-the-board strength in the portfolio rather than one or two huge winners. Financials, tech and media all helped. In 1999, Vanguard reopened the fund and gave a quarter of assets to Sanford Bernstein. Those who got in at that point have been handsomely rewarded.

Bill Fries, Thornburg Value A (TVAFX): Like Bill Miller, Bill Fries is open to a wide array of stocks as long as they're trading well below his estimate of their intrinsic value. The fund tends to hold a lot of services stocks including health care, financials, and business services. Fries provides a great running commentary on his holdings. The fund's record isn't shabby either: It has produced top-quartile returns in five of the past seven years and it's in fine shape to record six out of eight.

American Funds New Economy A (ANEFX): Media stocks are the story here. This fund loves media stocks and services. Co-manager Gordon Crawford is probably the most respected media analyst in the country, and he's grabbed headlines for sparring with former AOL executives at AOL Time Warner. AOL, Yahoo and InterActiveCorp have helped the fund produce 23.56 percent returns this year. That sector bias has made the fund a little more volatile than most American funds, but it has at least produced solid long-term returns as compensation.

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