NEW YORK, March 21 As the broader market shifted between fear and exuberance, the winners of the 2014 U.S. Lipper Fund Awards managed to strike a balance and delivered consistent returns.
Trophies were handed out to the managers of the 37 top-performing mutual funds for the past three years ended Nov. 30 that faced stretches of market turbulence. They contended with a bond market selloff, a sharp rise in stocks following the U.S. Federal Reserve's easy money policies, a rout in emerging market assets, unprecedented stimulus from the Bank of Japan and a partial shutdown of the U.S. government.
In this 12th year of the awards, Lipper, a unit of Thomson Reuters Corp , Lipper recognized 107 fund families. The awards were officially presented in New York City on March 20.
In a conversation with Reuters, Tom Roseen, Lipper's head of research services in Denver, and Jeff Tjornehoj, Lipper's head of Americas research, explained how the awards can help investors recognize the rare fund that performs well over time.
Q: What is the most important factor for picking winning funds or firms?
Roseen: We don't need to have the best performance. The best performance can add that extra risk that you and I are perhaps not willing to absorb. It's not only consistent or persistent performance, but consistent over long periods of time.
Tjornehoj: No one is a favorite here. We don't send this through a jury. This is done strictly based on our model for producing the best consistent return over three, five, and 10 years. The consistency is critical.
Q: Was there a common trait among this year's trophy winners?
Roseen: These were the ones that were able to mitigate losses better than their peers in poor-performing classifications and showed persistence in their strong performance over longer time periods. It's really finding that gem in the weeds.
Tjornehoj: The only thing we can say is that all of these managers have seen market volatility decline substantially in the past three years. Certainly, the bond fund managers had to deal with a little lumpier ride than equities, but relative to what was going on five or six years ago, the waters are far calmer.
Q: Which trophy winners stood out to you?
Roseen: MassMutual Retirement Services did very well. They ended up having the best mixed asset and the best overall small group. At last year's fund awards, they actually did very well in the mixed asset group, taking a trophy home, but this is the first time they have taken home both the best overall small fund group and the best mixed assets small fund group awards.
Many investors don't think of the old insurance companies as glamorous fund shops, but certainly (MassMutual) did a great job changing that opinion.
Tjornehoj: The Delaware Extended Duration Bond Fund has been a stellar performer for several years now. It swept its category, and it has done that for the last four years over three-, five-, and 10-year periods.
TIAA-CREF is winning the overall large company award for the second year in a row. TIAA-CREF has a very sharp eye for reducing expenses where they can, so that shareholder-friendly management style should get notice.
Q: What enables the repeat winners to do consistently well?
Roseen: They stuck to their knitting. The TCW Total Return Bond Fund, for 2010 and 2014, won the three-, five-, and 10-year categories, and then in 2012 to 2013 they won the five- and the 10-year groups. They maintained their investment focus and weren't concerned about chasing performance.
Tjornehoj: They each have a different approach, but overall it comes down to being risk-savvy. Downside volatility is punished four times heavier than upside is rewarded.
Q: What else strikes you about this year's winners?
Roseen: Dimensional Fund Advisors' DFA Intermediate Government Fixed Income Portfolio... that fund has shown up as a repeat winner at the 10-year mark. There are funds that actually show a propensity to continue to add to their track record.
Tjornehoj: Our model is not stuck in the past. While we have a fair number of repeat winners here, the model is able to show that some firms and their funds are rising ahead, so it's not just the same group getting a trophy year after year.
Q: What should an investor in these funds expect?
Roseen: These are not the home-run hitters. These are the guys that are driving doubles for us and will get us on base and will hopefully get us into scoring position. We're into risk avoidance. These are the types of funds that would fit better in our portfolios and probably let us sleep. (Reporting by Sam Forgione; Editing by Lauren Young and Jeffrey Benkoe)