(PUB) Investing 2016

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Firms With 100% Manager Retention Rates Tracking Morningstar Analyst Ratings | Russel Kinnel

even Volkswagen VOW3 —all of which are facing some big challenges.

Champlain Mid Cap CIPMX Champlain has 10 managers, and it’s been a model of stability. Co-founder Scott Brayman’s former firm, Sentinel, has seen much more turnover, so he would seem to have learned some lessons when he set up this firm in 2004 . This Silver-rated fund seeks out stable growth companies trading at respectable prices. Brayman and his team are much more disciplined on valuation than most mid-growth managers, and that can really pay off in years like this one, as the fund’s year-to-date returns are in the top percentile. More importantly, its long-term record is strong, too. Metropolitan West Total Return Bond MWTRX This firm has eight managers, and it’s a good thing they’ve stuck around, as this Gold-rated fund has been a big magnet for investors leaving PIMCO Total Return PTTRX . No doubt the stability of manage- ment is a welcome aspect of MetWest. The firm was founded by ex- PIMCO managers, and it is run in a way that would seem familiar with PIMCO Total Return. However, it’s not an exact match. The fund does very little with derivatives because management wants to focus on bond selection. Tad Rivelle, Steve Kane, and Laird Landmann have worked together for more than two decades. They tend to invest where prices are attractive, but they do take on more credit risk than their peers, and their value-oriented strategy doesn’t shield the fund from all credit risk. Sound Shore SSHFX OK , this is the only fund offered by Sound Shore, and it has three managers, so its 100% retention rate is maybe a little less impressive than those above. But talk about experience. Harry Burn and Gibbs Kane founded the firm in 1978 , and John DeGulis has been with the firm 20 years. The Silver-rated fund is a mild-mannered focused fund that has consistently performed well through all kinds of markets. K

We calculate a manager retention rate for fund com- panies. The idea is to track how many managers a firm has lost and how many it has retained. A new manager doesn’t count against the number, only departures. We look at the past five years and compute a percentage based on the annual retention rate. Good firms stay above 90% consistently. A few manage to hit 100% . You won’t be surprised to know those are mostly smaller firms. Even so, it’s a picture of stability that’s quite appealing. I’ll highlight five Morningstar Medalists from firms that haven’t lost a single manager in the past five years. It’s a good sign when a firm’s culture is strong enough that no one wants to leave. Hotchkis & Wiley High Yield HWHAX Hotchkis & Wiley has a total of 15 portfolio managers— the most of any firm that has a 100% retention rate. This fund, which has a Morningstar Analyst Rating of Bronze, is led by former PIMCO managers Mark Hudoff and Ray Kennedy, who joined the firm in 2009 and 2008 , respectively. Perhaps enjoying the free- dom of a smaller asset base than the one they ran at PIMCO , the managers have emphasized smaller issuers and a more concentrated portfolio. They’ve produced top-third five-year returns. They added comanagers Patrick Meegan and Richard Mak in 2012 and 2013 , respectively. Causeway International Value CIVVX Causeway has 11 portfolio managers. Some are quali- tative and some are quantitative. This Gold-rated fund is run by the qualitative side. Sarah Ketterer and Harry Hartford are lead managers who co-founded the firm in 2001 . They ply a contrarian strategy that is limited to developed markets. They like to find good companies priced cheaply because of a crisis. Thus, they’ve added banks, drug companies, and

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Our ratings are chosen for long- term success. Analysts assess a fund’s competitive advantages by analyzing people, process, parent, performance, and price. They do rigorous analysis and then submit their ratings to a committee that vets their work for thoroughness and consistency.