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The Rare 3 percent

edited October 2019 in Fund Discussions
Hi Guys,

There are a very few rare gem current fund managers who are special. They are special and deserve consideration if they outdistance their benchmarks. Long term performance is perhaps the most significant criteria. I provide a reference that summaries the data in that arena:

This is good stuff, but caution must be exercised. From the referenced article: “ Out of about 7000 U.S. equity mutual funds in Morningstar's database only 199, roughly 3%, have fund managers who have beaten the S&P 500 by enough to make a difference and outperformed their category benchmark over the past 10 years. “.

Now that is really special, but unfortunately it measures a fleeting characteristic. Investment management is a tough business. Past success doesn’t always translate into future success. Change happens.

However, it just might be worth your time to visit the reference and examine “The List”. You just might improve your portfolio.

Best Regards.


  • edited October 2019
    I think there is a real danger right now in reviewing managers by their 10-year returns as the second worst bear market in U.S. history ended in March 2009 and the ten year-returns now exclude that bear market and we instead have returns for a great bull market. What you will end up with is likely some aggressive growth managers who out-beta'd the benchmark to beat it in the last ten years with large concentrations in tech stocks. A 15-year record would be better, but then much fewer managers have that tenure at one fund and may not be around much longer if they retire soon. What I might suggest actually is looking at a 3-year one instead as 2018 was the first bad year we had in a long time. Or simply see in the bad periods 4th quarter of 2018 and I believe--please doublecheck--fourth quarter of 2015--which funds performed well then and then see if those same funds also hold up when markets are good again or are they too conservative during bull runs? Upside/downside capture, ulcer index, bear market return numbers are probably easier ways to look. But articles like this one are dangerous if one simply takes the numbers for granted.
  • I completely agree with Lewis. Similar reasoning is why I've advised caution in looking at 3,5,10 year figures if the market in the last 1 year has been particularly good or particularly bad. That one year distorts all the longer term figures, and creates a bias in favor of very aggressive or very conservative managers, respectively. Likewise, to exercise caution in looking at bond fund performances, both because we've had a four decade decline in interest rates (bond bull market) and because there's been a short term plunge in rates.
  • Puglia and Tillinghast appear to absolutely rule, then, and surely there are a few others. (Don't know the Primecap history.) Tillinghast took a break for a little while, iirc.

  • Agree w/the above --- imho the 10 year chart is meaningless. I routinely look at 15, 20, and max timeframes now. For me a decent rule of thumb would be how much they lost in '08 .... if they didn't do too badly (by comparison to say the SPX) and were not wallowing in a huge cash pile, that implies they don't follow the herd and are thus worthy of my consideration.
  • '08 .... if they didn't do too badly (by comparison to say the SPX) and were not wallowing in a huge cash pile, that implies they don't follow the herd and are thus worthy of my consideration.
    You just described HSGFX:)
  • While I agree that Tillinghast is a fine manager, I'm wondering on what basis he appears to "absolutely rule".

    In 2008, FLPSX returned -36.17%, less than the -33.79% return of its chosen benchmark (R2K, per prospectus). Personally, I would have chosen a benchmark such as the Russell Midcap Value index, as was used by JMCVX. That latter index returned -38.44% in 2008, per the JMCVX 2009 prospectus.

    For completeness, the R2K value index returned -28.92% in 2008, and the S&P 400 midcap index returned -36.23% (both from the same Janus prospectus). FLPSX returned -20.73% in the fourth quarter of 2008 (from any FLPSX prospectus - that was its worst quarterly return).

    Regarding Tillinghast's break, it was for four months, starting in Sept. 2011 and ending in January 2012. Given that FLPSX's best annual performance relative to its peers over the five years 2009 through 2013 was in 2011, it wouldn't appear that Tillinghast's temporary absence had any negative impact. And since both Fidelity and Morningstar report Tillinghast as the fund manager from 1989 to the present, a simple screening for continuous management wouldn't have excluded Tillinghast from consideration of best 10 year managers.

    On the positive side, FLPSX did outperform its MCV peers in the 4th quarter of 2018 (-13.54% vs. -15.72%), though over the two quarters including that one and the 1st quarter of 2019, everyone lost the same amount of money: about 5%. The fund did a little better in providing protection in the 3rd quarter of 2015, when it lost 6.2% vs. 9.19% for its peers. Including the slight bounce back the next quarter, FLPSX still did better, losing about 5% overall, while this time its peers lost around 7%.

    The figures are okay, but I'm not seeing anything in the numbers that scream "buy me". Is that it, or is there something else that leads you to feel this manager rules?
  • I was just looking at 15y return, as LB mentioned, of the rare individual managers I am aware of (I am missing some, I am positive) who have worked that long nonstop, compared w various indexes.

    (FLPSX is not easy to compare fairly, prospectus notwithstanding, because of its usual large foreign slug, in some periods thought to be a good thing.)

    Tillinghast is only 61yo, so if I were going to invest for 15 more years I would consider his work seriously.

    Puglia is a bit younger.

    Did not say it screams 'buy me'. Whose work does that for you? 'Absolutely rule' meant outperforms almost all others over that long haul. Whom do you have in mind for top rankings over the long hauyl?

    am reading now about DCohen and Scherschmidt, at

    also these guys. Fried is sometimes mentioned in such articles.

    Puglia is not commonly mentioned anywhere that I can see. His big runup is recent, looks like.

    All three of the POAGX guys' stints hit 15y end of this week.
    Should also do a search of these names on MFO and MFOP.
  • I don't look for managers who "rule", just ones whom I reasonably believe will turn in an above average performance over time. However, since we're talking about a MCV fund manager, why not look at my 2012 list of MCV funds?

    Two of those five funds no longer have the same lead manager. NSEIX (hardly a surprise, longevity was a risk back then), and MSAIX (a fund that promptly dropped into the bottom half each year after my mention, except for its 47th percentile showing in 2018).

    But the other three have had the same lead managers for 15+ years. They're all fine; I don't see FLPSX standing out.
    Fund    15 year     2008 (Q4)          3Q2015   4Q2018  
    FLPSX 9.14% -36.17% (-20.73%) -6.20% -13.54%
    ACMVX 10.45% -24.49% (-18.96%) -6.34% -14.96%
    JAMCX 8.95% -33.24% (-21.70%) -7.38% -14.88%
    VETAX 10.84% -33.10% (aprox-19%) -4.44% -15.29%

    These four alone constitute 4% of MCV funds according to M*. They can't all be the rare 3%:-)
  • A good list that was, but I memorize only some of your posts over time, not all of them. Davidson is famously good, I shoulda thought of him. GMiller I do not know, but good to be aware of such outstanding work.
    Yes, Tilllinghast's penchant for non-US equities, almost 38% as of a few months ago, has often been a drag, especially the last few years, and this has been much commented on. I wonder why FLPSX had less of a drawdown a year ago.
    Miller's notable Victory Sycamore has the lowest 15y UI in MFOP, moreover, again probably in part because its mandate excludes foreign equities. A value fund triumph.
  • Hi Guys,

    The debate over the persistence of fund manager performance greatly exceeds the persistence of their actual performance. Here is a paragraph that summaries the debate accurately:

    “It’s no secret that investors often interpret past performance as evidence of manager skill and put their money to work accordingly. But risk-taking that paid off in the past may not continue to do so in the future. Luck—good or bad—may also influence past performance, but it’s fleeting. Many studies have analyzed the relationship between past and future performance and have generally found some evidence of performance persistence over short horizons. But there is less evidence that past performance can predict future performance over longer windows”.

    This summary was lifted from the following Morningstar reference:

    Change happens all the time, especially in the marketplace. Luck is a major factor and that is transient. Thank you for your excellent submittals.

    Best Wishes
  • I (guess) that works the same on the upside as well as the downside !?
  • MJG
    edited October 2019
    Hi Derf,

    Indeed luck is a major factor both on the upswing and the downswing of the markets as well.

    It really could not be otherwise. Consider the huge disparity in overall experience and resources. For the most part you as an individual are competing against an organization whose main business is dedicated to studying, understanding, and investing in the marketplace. Just the intensity and magnitude of their commitment will overwhelm you. And there are many such organizations playing this game daily.

    In general, many of these firms, certainly not all, will be winners, and the poor individual must be the relative loser in terms of underperforming them. To maintain an average, the winners and losers must balance each other in both the short and the long term. Such is the uncompromising math that dictates that averaging outcome.

    That’s too, too bad for the average individual investor. The good news is that we are not all average, so hope is eternal.

    Best Wishes
  • edited October 2019
    Good info, Thks for posting. A couple of observations - he says this is a list of 199 funds but it contains only 144 funds. EDIT - I see 24 load funds on the list END OF EDIT. Also the article says these funds beat the S&P 500 (by some unquantified amount) and their benchmarks but the list is just based on beating their benchmarks, which seems fairer than having to best both. The funds 10 year performance runs from BFOCX at 21.42%/yr compounded down to PVMIX at 13.56%/yr.

    I would like to know each funds category. Sorting by how they have beaten their categories over the past 10 yrs, MWATX is on top (19.2%/yr), topping it’s category (roughly 13.2%/yr) by 6%/yr down to TWCIX (14.85%/yr) which beat its bogey by 0.17% /yr (a bogey of about 14.6%/yr).

    I will say, I don’t think I own any of the funds, will have to chk. And I don’t think this list will change that. ;~))
  • And another list

    Bill Gross
    Bruce Berkowitz
    David Herro


    Things can change.
  • Derf said:

    I (guess) that works the same on the upside as well as the downside !?

    Actually not. Lots of research papers come to the conclusion that bad performance has a stronger tendency to persist than good performance.

    That is, if a fund performs poorly, there's a good chance that it's going to continue that way. Its bad luck, if it is luck, doesn't tend to change.

    A quick search came up with this marketwatch column, and this UK paper:
    In evaluating all of the persistence studies, five inferences generally supported by the research can be drawn: ... Cold hands persistence is much stronger than hot hands persistence: Poor past performance is a strong predictor of future poor performance. The contrarian strategy of investing in last year's poorly performing funds is shown to be a poor strategy.
    Studies in the empirical literature on persistence in mutual fund performance provide fairly strong evidence of persistence in negative performance, but much weaker evidence of persistence in positive performance.
  • edited October 2019
    “There are a very few rare gem current fund managers who are special. They are special and deserve consideration if they outdistance their benchmarks.”

    - I’ve never liked the “star manager“ approach to fund investing anyway. However, as humans we’re all (well most of us) attracted to that kind of “glitz” and larger-than-life celebrity status. I’ll include myself in the adoring crowd. And true-to-life, all hot hands eventually run their course. It’s been proven time and again.

    - One can avoiid that issue somewhat by using good funds (D&C stands out) which utilize a team approach and generally shun having bright lights shining on individual managers.

    - Perhaps overlooked in the OP is that value investing hasn't kept pace with the broader markets for a long time (decades I suspect). And value investing is an approach where good managers / management can contribute the most. Possibly value (as an investing style) will make a comeback and reward the die-hards who have stuck with it. Or possibly, the markets have undergone lasting structural changes (possibly related to technology) and value will never rebound.

    - Obviously, if a manager who is taking a cut of the returns is to make sense for the investor, that manager needs to produce superior results to what the market averages can deliver.

    - Missed in this discussion, I think, is that compared to the overarching sin of not investing enough early enough, the sin of owning funds that underperform somewhat would seem the less egregious over one’s lifetime. Also, the latter can be easily rectified along the way. The former cannot.

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