Standard & Poor’s Equity Research has named names in its first-ever U.S. Mutual Fund Excellence Awards Program, and while the winners include big players such as Dreyfus and Vanguard, they also include smaller firms such as Jensen Investment Management and Mairs & Power.
For example, the top-winning gold domestic large-cap equity award went to Jensen Portfolio; J (JENSX), followed by a silver award for Becker Value Equity Fund (BVEFX) and a bronze award for Dreyfus Appreciation Fund (DGAGX). And among blended individual securities, the top gold award went to Vanguard Tax-Managed Balanced Fund; Investor (VTMFX), while the silver went to Mairs & Power Balanced Fund (MAPOX) and the bronze went to Vanguard Balanced Index Fund; Investor (VBINX).
Overall, winners were divided into 10 categories, ranked as gold, silver and bronze award recipients. S&P’s U.S. Mutual Fund Excellence Awards Program recipients were selected from an initial universe of 19,000 mutual funds. Those who won consistently achieved the highest overall quantitative ranking of five stars in their category using S&P’s proprietary, holdings-based research from Sept. 12, 2009 through Aug. 31, 2010.
In Sept. 2009, S&P Equity Research revamped its mutual fund ranking approach, which led to its award program, said S&P mutual fund analyst Todd Rosenbluth.
“Instead of just looking at past performance, which has been the industry standard, we decided to look under the hood to understand the expense ratio of the fund, to understand the quality of the fund’s holdings and to understand how
long management has been in place,” Rosenbluth said. “The funds that are recognized have been consistently top-ranked by S&P according to their performance track record, the quality of the holdings, and other risk and cost factors.”
S&P’s mutual funds awards program comes at a time when exchange traded funds (ETFs) are eclipsing them as a popular investment tool. However, Rosenbluth asserted, mutual funds remain extremely important to U.S. investors.
“At S&P, we have rankings on both ETFs and mutual funds on our platform. But because there are 19,000 mutual fund share classes, and while money has flowed in and out of certain funds over the past year, this still remains where people put their retirement dollars to work and where advisors are looking for asset allocation. We really wanted to narrow down that 19,000 universe to a more digestible group of top-ranked funds,” he said.
Rosenbluth added that the total of 30 funds represented in the awards program included some surprises, especially among smaller fund shops. While big names such as Vanguard and T. Rowe Price are well represented in the gold, silver and bronze categories, he noted, but it was interesting for the S&P fund analysts to see the smaller firms that rose to the top of the rankings.
“Jensen Portfolio is our large-cap gold recipient,” Rosenbluth said. “Jensen has two funds in the market place. The large cap one, while sizeable, is less known than some of its peers, but the track record is strong. The costs are low and they hold high-quality securities.”
Jensen Investment Management is based in Portland, Ore.
Another striking winner among the smaller names was Mairs & Power Funds of St. Paul, Minn., added Rosenbluth’s colleague, S&P mutual fund analyst Dylan Cathers.
“They have just the two funds—the Growth Fund and the Balanced Fund, although the Mairs & Power Growth Fund is actually not that small, and it’s been around for quite awhile,” Cathers said. “It’s a very well run fund. It invests in very high-quality securities, one of the things we like to talk about when we’re looking at funds. It also has very low expenses relative to its peers.”
Cathers said that Mairs & Power mainly invests in industrial, equipment and health-care companies that are based near its home in Minnesota—and the firm’s portfolio reminded him that good things can come in small packages from unexpected places.
“It didn’t occur to me that Minnesota would have a lot of health care-related names,” he said. “It’s another example of the way we look at funds. We don’t care where you’re based or what size you are. If you can hit those three bogeys that we pay special attention to—good performance, low risk and low cost—if you can hit those three targets, it doesn’t matter where you are. We’ll find you.”