Three Stars on the Horizon
These young managers at Janus, Vanguard and RiverSource have caught Morningstar's attention.
There's a good chance you haven't heard of mutual fund managers named Jason Yee, Donald Kilbride and Nicholas Thakore. If fund rater Morningstar is right, however, you may be hearing big things about all three men in the future.
Morningstar featured them June 28 at its annual conference, in Chicago, on a panel devoted to "rising stars." "We like to find good managers early in their careers, while their funds are still nimble," said Morningstar analyst Scott Berry, who moderated the panel.
Actually, if you're a long-time Kiplinger's reader, you may have heard of Yee. We featured him on the cover of our September 2001 issue in an article called "Catch a Rising Star." Yee, a bargain-hunting globetrotter, manages several Janus funds, including Janus Global Opportunities (symbol JGVAX) and Janus Worldwide (JAWWX). Yee, who buys high-quality companies trading at bargain prices, has managed Global Opportunities since its 2001 inception. That fund, which invests in a concentrated, 26-stock portfolio containing companies of all sizes, has returned an annualized 12% over the past five years through June 28. That return places the fund in the bottom quarter of all funds in Morningstar's "world stock" category. Yee's avoidance of energy and emerging-markets stocks is partially responsible for its lackluster returns over the past two calendar years.
Yee took over Janus Worldwide, another global fund, in July 2004, and put a more bargain-conscious spin on what had been a far more aggressive, growth-oriented fund. Worldwide, which lost 63% during the 2000-02 bear market, produced middling gains in 2004 and 2005. But over the past year through June 28, Worldwide returned a whopping 35%, placing it in the top 12% of its global-fund peers. "I'm hopeful people will look past the history and legacy of Worldwide and find a good manager who has a disciplined process and whom they can stick with for a long time," says Yee.
These days, Yee is finding more bargains in the U.S. than abroad. Both Worldwide and Global Opportunities have a bit more than half of their assets in domestic companies. The funds share many common holdings, including Dell (DELL), which occupies the top spot in both. In Yee's view, Dell's share price already reflects all of the bad news that has hit the company in recent years.
Strong, steadily growing companies that boost their dividend payments year after year are Kilbride's stock in trade. He took over management of Vanguard Dividend Growth (VDIGX) in February 2006. Over the past year, the fund returned 25%, two percentage points ahead of Standard & Poor's 500-stock index. "The focus is on a company's ability to pay dividends in the future," says Kilbride, who is also the back-up manager for Edward Bousa at Vanguard Wellington, a balanced fund.
Kilbride estimates how big a dividend a company might pay in five years. To do this, he assesses the company's dividend history, its free cash flow (the cash that's available to make acquisitions, buy back shares and pay dividends) and management's willingness to continue boosting the payouts. Most of the 60 companies in Kilbride's $1.2 billion fund have a long history of paying and boosting dividends. But several holdings, such as Microsoft, have relatively short dividend records. The software giant declared its first dividend in 2003.
Before he joined RiverSource in 2002, Thakore was a rising star at Fidelity. During his nine years there, he served as an assistant at Fidelity Magellan (FMAGX) under Jeff Vinik and, later, Bob Stansky. He moved on to manage Fidelity Trend (FTRNX) in 1998 and then Fidelity Fund (FFIDX).
In 2002, Thakore became the manager of RiverSource Growth, a large-company fund that can invest up to a quarter of its assets in smaller companies. The fund (INIDX), which uses a growth-at-a-reasonable-price strategy, gained an annualized 8.5% over the past five years. That trails the S&P 500 by an average of two percentage points a year, but beats the average gain of funds that invest in large, fast-growing companies by an average of one percentage point a year. "I look for great growth stories," says Thakore, who also runs a portion of RiverSource Large Cap Equity (ALEAX). "But I have to feel like the downside is protected."