28 BARRON’S February 22, 2021
recoveries on record.
To qualify for this ranking, firms
must offer at least three active mutual
funds or actively run ETFs in Lipper’s
general U.S. stock category; one in
world equity; and one mixed-asset,
such as a balanced or allocation fund.
They also need to offer at least two
taxable bond funds and one national
tax-exempt bond fund. All funds must
have a track record of at least one year.
While the ranking excludes index
funds, it does include actively
managed ETFs and “smart beta”
ETFs, which are run passively but
built on active investment strategies.
All told, just 53 asset managers out
of the 822 in Lipper’s database met our
criteria for 2020. The list varies from
year to year, as firms merge, get
acquired, or add or drop funds. After
liquidating its mixed-asset funds,
Aberdeen Standard Management
dropped off this year’s ranking. Legg
Mason is another notable firm that’s
no longer on the list; Franklin
Templeton acquired the firm in 2020.
Many other large fund managers are
consistently absent because they don’t
check all of the boxes in the categories
we consider. Notable names in this
category include Janus Henderson,
Dodge & Cox, and Charles Schwab
Investment Management.
Active investing comes in many
forms, but human decision-making is
always part of the process, whether it
entails picking individual stocks and
bonds, creating and improving factor-
based models, or making big-picture
calls that affect multiple portfolios.
“The first thing that went right for
us was asset allocation,” says Ebrahim
Busheri, director of investments at
Manning & Napier. The 50-year-old
Rochester, N.Y., firm was an early
adopter of asset-allocation funds and
began offering life-cycle strategies
in 1988, decades before the industry
embraced them. Heading into the
March selloff, the firm’s multi-asset
portfolios—including four Pro-Blend
funds—underweighted equities, not
because Busheri and his colleagues
predicted the pandemic, but because
they thought it was the late stages of
the economic cycle and that valuations
had gotten ahead of themselves.
When markets plummeted 34%
in late February and March, the
managers quickly changed course.
“We are truly an active manager, and
when there’s volatility, there’s the
potential to benefit.” says Busheri.
The firm’s largest allocation fund,
Bond Market
Bonanza
Disruptions
caused by Covid
presented at-
tractive buying
opportunities.
83%
The percentage of
Vanguard’s active
fixed-income funds
that outperformed
their benchmarks
in 2020
the $695 millionManning & Napier
Pro-Blend Extended Term
(MNBAX), went from a 46%
allocation to stocks in February to
59% by the end of March. The fund
returned 17.6% in 2020, better than
96% of its Lipper peers, and with less
risk than the market. The fund’s
maximum drawdown during the
selloff last spring was 19%.
While allocation decisions set the
tone, performance was also a function
of security-specific decisions. “We tend
to grow our own talent,” says Busheri,
who joined the firm after getting his
M.B.A. at the University of Rochester.
“It’s easier to implement a specific
strategy when you train analysts to
think that way from day one.”
On the equity side, the firm
categorizes holdings into three main
buckets: “profile companies” are
growth stocks with sustainable
competitive advantages; “hurdle rate
companies” are out-of-favor cyclical
companies; and “bankable deals” are
companies whose parts are greater
than their market value. During the
selloff last spring, Manning & Napier
managers focused primarily on buying
or adding to their positions in “profile”
companies such asAmazon.com
(AMZN),PayPal Holdings(PYPL),
andServiceNow(NOW).
T
hough stocks dominated the
headlines, some of the biggest
dislocations last March were in
the bond market. Heading into 2020,
Anne Walsh, chief investment officer
of fixed income at No. 2-ranked
Guggenheim Investments, and her
colleagues battened down the
hatches, thinking that most bonds
were priced to perfection. “Then
came the coronavirus, and things
pivoted almost overnight,” she says,
recounting how redemptions in
riskier corporate bonds exacerbated
losses for managers who were forced
to sell. Meanwhile, companies issued
new bonds—with significantly higher
yields than a couple of months prior—
to raise capital to weather the crisis.
This opened the door for Guggenheim
to go shopping.
After lagging behind its benchmark
in 2019, the $25 billionGuggenheim
Total Return Bondfund (GIBIX)
returned more than 15% in 2020,
and beat nearly all of its Lipperpeers.
Likewise, the $6 billionGuggenheim
Macro Opportunitiesfund (GIOIX)
returned 11.6% to rank at the top of
its peer group.
Guggenheim offers a diverse lineup
of funds, but most of its $246 billion in
assets under management are in fixed
income. Guggenheim is adept at
turning market dislocations in its
favor. It cleaned up after the 2008-09
financial crisis, and in 2014, following
the taper tantrum, the Total Return
Bond fund returned 8.3%—outpacing
most of its peers.
Still, last year was its own story,
namely because “things snapped
back so quickly,” says Walsh. The
company tries to minimize behavioral
biases that often lead to second-
guessing through its organizational
structure. Guggenheim’s 214 fixed-
income investment professionals,
who are based primarily in Santa
Monica, Calif., and New York, work
in four groups, each focused on
macroeconomics, portfolio
construction, security analysis,
and portfolio management.
The market has bounced back, but
Walsh and her colleagues say there is
still room for yields on riskier bonds to
move closer to their risk-free equivalents.
“Nothing moves in a straight line, but
generally speaking, the trend is toward
tighter spreads,” she says.
T
his year’s No. 3 spot goes to
Vanguard. The $7.1 trillion
manager is best known as a
powerhouse in index investing, but its
$1.7 trillion in actively managed funds
—split evenly between equity and
fixed income—makes it one of the
largest active investors in the world.
Vanguard doesn’t do much stock-
picking in-house; most of the firm’s
active equity funds are managed by
outside advisors, as has been the
case since John Bogle founded
Vanguard to handle the administrative
functions of his previous employer,
Wellington Management.
Working with subadvisors allows
Vanguard to seek out the best talent
in any given area and keep costs low,
says Kaitlyn Caughlin, who is a
principal and head of Vanguard’s
Portfolio Review Department, charged
with developing and maintaining
funds managed in-house and by
roughly two dozen outside firms.
In the case of the $71 billion
Vanguard International Growth
fund (VWILX), subadvisors Schroder
Investment Management and Baillie
Gifford delivered a nearly 60% return
in 2020, thanks to long-term positions
in top performers likeAlibaba Group
Holding(BABA),Tencent Holdings
(TCEHY), andTesla(TSLA).
Wellington Management’s Don
Kilbride has run the $45 billion
Vanguard Dividend Growthfund
(VDIGX) since 2006 with a
philosophy that rising dividends are
both a byproduct and harbinger of
high-quality companies that can
compound returns, even in tough
environments. Top holdings such as
UnitedHealth Group(UNH),Nike
(NKE), andJohnson & Johnson
(JNJ) contributed to the fund’s 12%
return last year, better than 85% of
its Lipper peers.
The $48 billionVanguard
Windsor IIfund (VWNAX) also
helped Vanguard’s overall standing.
It returned 14.5% in 2020 to edge out
most of its large-value peers—though
some of its larger holdings, suchApple
(AAPL) andAlphabet(GOOGL),
aren’t prototypical value stocks. “It’s
considered a value manager, but
certainly not in the way we think of
value,” says Daniel Wiener, chairman
of Adviser Investments and senior
editor of the Independent Adviser for
Vanguard Investors.
Last year, 83% of the firm’s active
fixed-income funds—most of which are
managed in-house—outperformed
their respective benchmarks. That
includes the $74 billionVanguard
Short-Term Investment-Grade
(VFSUX) and $37 billionVanguard
Intermediate-Term Investment-
Grade(VFIDX) funds, which were up
more than 5% and 10%, respectively, in
2020, putting them in the top decile of
their Lipper peers. Smart investment
In a typical year, Fidelity’s research team
has more than 13,000 face-to-face meetings
with companies—a process that went virtual
in a matter of days last spring.