These great managers are not boxed in by a particular style. By Andrew Tanzer, Senior Associate Editor August 31, 2007 Investment legends like Peter Lynch, Warren Buffett and John Templeton are imaginative, instinctive types. When he ran Fidelity Magellan a generation ago, Lynch bought shares of everything from behemoths, such as Fannie Mae, to small local banks. Buffett also invests in companies of all sizes -- Coca-Cola, Moody's Investors Service and See's Candies, to name a few of varying sizes. Templeton roamed the globe and didn't care if a stock was labeled growth or value as long as it was a good buy. Alas, the fund-management business has veered in the opposite direction. The rise of rigid, style-box investing has pigeonholed many a fund manager into uniform-size companies, a uniform investing style and narrow geographical confines. If you were in a large-company growth fund early in the decade, when large-growth stocks were hideously overvalued, you were out of luck. If a manager spots a gem that sits outside the fund's assumed stomping ground, he or she may have to leave it be. Although Morningstar pioneered the style box, many industry veterans think financial advisers and consultants have hijacked the concept. "The investment-consulting community has perverted Morningstar's style box," says Osterweis Capital's John Osterweis. "It took something meant to be descriptive and made it prescriptive." The good news is that investors can find plenty of excellent go-anywhere funds. Such funds allow the experts to decide where today's best opportunities reside, style box be damned. We'll tell you about six of them. Advertisement For Rob Gensler, the world is his oyster. "My opportunity set," he says, "is the entire $56-trillion market cap of the world." London-based Gensler picks stocks for T. Rowe Price Global Stock (symbol PRGSX) from this vast menu -- and logs a quarter of a million air miles a year in pursuit of the right mix. Nearly all of the fund's 74 holdings come from a list of 500 to 600 companies recommended by Price analysts and fund managers around the globe. Gensler, who was previously the ace manager of T. Rowe Price's Media & Telecom and Global Technology funds, is partial to growth stocks, preferring companies that increase earnings on the order of 20% a year. He particularly likes telecom operators in emerging markets, where the wireless-phone business is rapidly expanding. Because the developing world now accounts for more than half of global economic growth, Gensler prefers the U.S. and European companies he invests in to have exposure in emerging markets. At last word, his fund had 42% of assets in U.S. stocks and 55% in foreign names. From the time Gensler took over in March 2005 to July 2, Global Stock returned an annualized 25%. Not one to mince words, he thinks he's hit on a good concept: "I feel strongly that 20 years from now, there will be only one investment approach -- a global approach." Global bargain hunter If Rob Gensler is growth manager to the world, then David Winters is his value-manager counterpart. After a distinguished career at Franklin's Mutual Series unit, Winters decamped to launch Wintergreen (WGRNX) in October 2005 and embark on a global shopping expedition. "The best deals today are outside the U.S," he says. Two-thirds of Wintergreen's holdings are foreign. Advertisement Winters has assembled a wonderfully eclectic fund. He has been hedging the key risks of inflation and a weak dollar by buying stocks in strong-currency countries, such as Norway, and loading up on hard-asset producers, such as Anglo American, a big British miner of platinum and diamonds. He also holds a large position in cigarette companies, such as Japan Tobacco and Imperial Tobacco, which have the ability to raise prices to keep pace with inflation. One of the best value-investing practitioners in the business, Winters zeroes in on balance sheets, stock value and the quality of a company's leaders. Wintergreen has returned an annualized 22% since its launch. The one thing not to like is the steep expense ratio -- 1.91% a year. At 73, Don Hodges has seen it all in the fund industry, and he thinks hewing to style boxes is, well, an idiotic way to invest. "It's like putting a football team on the field, ignoring what the defense is doing, and running up the middle every play," quips the Texan. Hodges has run his eponymous fund since 1992 (son Craig joined him in 1999) on go-anywhere principles, and he's run it well. Hodges (HDPMX) returned 13% annualized over the past 15 years and an outsized 24% over the past five. He says the key is his ability to migrate from tiny companies to huge ones, from value to growth, or to wherever he discerns a bargain. Since 2002, for example, he's reduced the fund's allocation to so-called micro-cap stocks from 42% to 12% and raised his stake in industrial materials and energy from almost nothing to 33%. Advertisement This shrewd stock picker began loading up on railroad stocks in July 2004 after observing the never-ending stream of containers arriving from Asia at the port in Long Beach, Cal. Similarly, as a big fan of companies with revenue momentum, he pounced on deep-sea drilling rig owners, such as Transocean, when he observed shortages and escalating day-drilling rates. But Hodges always has space for compelling small companies. One such stock: Rocky Mountain Chocolate, a confectionery with a "perfect business model" that involves leaning on its franchise owners to put up all the expansion capital. Searching for bargains anywhere in the market is both "vocation and avocation" for this enthusiastic septuagenarian. Like Hodges, John Osterweis argues that fund managers should invest dynamically, moving from overvalued to undervalued sectors, instead of clinging to the "static way of the style box." You'll find value and growth stocks throughout Osterweis fund (OSTFX) because Osterweis the manager likes to latch on to depressed companies on the cusp of rebounding -- something typically ignited by the arrival of new executives. He sticks with these out-of-favor stocks, such as Crown Holdings and Diageo, after the market decides that a value caterpillar is in fact a growth butterfly. The San Francisco-based Osterweis focuses more on a firm's free cash flow than on earnings, which he calls "a negotiated number between management and auditors." (Free cash flow is earnings plus depreciation and other noncash charges, minus the capital outlays needed to maintain a business.) One of his favorite methods is to project a company's free cash two to three years into the future after new bosses have had a chance to transform the business. It's hard to argue with the results: a 15% annualized gain over the past ten years, compared with 7% for Standard & Poor's 500-stock index. Advertisement Two you can't ignore Finally, no story on flexible funds would be complete without citing two of the most imaginative thinkers in the fund business, Bill Miller (see A Legend Sizes Up the Market, July) and Ken Heebner (see The Savviest Stock Picker in America, May). Miller says his Legg Mason Opportunity (LMOPX) is as "unconstrained as a mutual fund can be." He takes short positions and invests in hedge funds, options and commodities as well as in stocks. Since 2000, this fund has migrated all the way from value to growth in Morningstar's style boxes. Holdings range from tiny MannKind, which is developing diabetes drugs, to United States Steel, Miller's largest position. Heebner places huge, concentrated sector bets in CGM Focus (CGMFX) and is lightning-fast on the draw. The $3-billion fund holds only 19 stocks. At the end of March, more than half of Focus was given to industrial materials and energy shares. The fund's annual turnover is a staggering 333%. Both Focus and Opportunity are volatile, and both have delivered superior long-term results. Opportunity returned 21% annualized over five years, while Focus gained 20% annualized.