Thanks to the bear market, many fund sponsors -- among them Columbia Management and Van Kampen -- are on the auction block. That, alas, is not necessarily good news for shareholders of the affected funds. Deals involving money-management firms often lead to mergers and manager shake-ups. That is one reason I like funds offered by employee-owned asset managers: Such companies rarely put themselves up for sale.
One modest, employee-owned asset manager you've probably never heard of is Manning & Napier. Although the firm, based in Fairport, N.Y., runs $16 billion in total, it's a blip in the fund world, with $5.2 billion spread among 17 funds. But in recent years Morningstar has warmed to the M&N funds, even if few others have.
Collegial approach. The big draws at Manning & Napier are consistency and discipline. A nine-member team, supported by 43 analysts and 11 economists, manages all of the funds. The managers and analysts search for strong companies trading at reasonable valuations -- usually at least 25% below what they think the companies are worth. Thousands of funds have a similar approach to stock picking, but they lack M&N's strong emphasis on downside protection and successful results.
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Manning & Napier's model attracts good stock pickers and gets them to work as a team. To get a stock included in a portfolio, an analyst must first persuade a senior partner that it's a winner. The partner then does his or her own research to confirm or refute the analyst's work. In determining bonuses, analysts get 80% of the credit (or blame) for a stock pick, and the partner gets 20%. The compensation clock starts ticking when the stock goes into the portfolio, and it doesn't stop until the stock is sold. So if a stock does well one year, but those gains are wiped out -- or worse -- the following year, the analyst's bonus takes a hit. That is a great way to align the interests of the professionals with those of fund shareholders.
M&N has built a line of relatively low-cost stock funds and balanced funds that have delivered strong risk-adjusted results. Here are my favorites.
Manning & Napier Equity (symbol EXEYX) is a large-company growth fund that has managed to perform relatively well this year as well as last. That may not sound like much, but this year's rebound has been led by last year's hardest-hit sectors and names, so it's no mean feat. From the fund's 2002 launch through August 7, it gained 7% annualized, handily beating the market.
I also like (and own) World Opportunities A (EXWAX), an overseas stock fund that, from its inception in September 1996 through August 7, outpaced the MSCI EAFE index by an average of five percentage points per year. It uses the same strategy, but its overseas picks have emphasized European health and consumer names, with a dash of Latin American consumer stocks.
If you really want to dial down risk, there's Pro-Blend Conservative Term S (EXDAX), which holds 71% of its assets in bonds, 2% in cash and the rest in stocks. In 2008, the fund lost just 5%. Of course, its upside is rather limited, too. It's gained just 6% this year.
One move that helped last year's performance across nearly the entire M&N line-up was a decision in 2006 to start trimming the funds' weightings in financial stocks. Managers had become concerned about the overheated real estate market and a lack of transparency among financial firms.
In today's fast-moving world, Manning & Napier remains an oasis of stability. The firm isn't selling itself, hasn't laid off professionals and hasn't been overwhelmed with a flood of new cash. All of this suggests that Manning & Napier funds stand a better chance than most of maintaining their good records. Because of the firm's risk-averse style, I suspect that M&N's results won't be as impressive during blistering market rallies. But that's an acceptable price to pay for dependable, gimmick-free funds.
Columnist Russel Kinnel is director of mutual fund research for Morningstar and editor of its monthly FundInvestor newsletter.
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