(PUB) Investing 2016

66 / 708

15 Morningstar FundInvestor February 2016
CII and CWI managers communicate within their
respective teams and with their respective analyst
groups, but they don’t share investment ideas
across subsidiaries. That makes for a more diverse
fund, as does the firm’s practice of having each
manager run a separate sleeve of the portfolio. Robert
Lovelace, the longest-tenured manager, oversees
CII’s side and the fund as a whole, while Joanna
Jonsson oversees CWI’s side. Although Lovelace
and Jonsson don’t share investment ideas, they talk
regularly to ensure that balance and diversification
characterize each side’s respective subportfolios and
the entire fund.
Over the years, the fund has amassed an impressive
record. Through the end of 2015, its three- and
five-year rankings were in the 12th percentile
of the world-stock Morningstar Category, and its
10-year return landed in the fourth percentile.
The fund also comfortably topped the returns of the
relevant indexes in those stretches. What’s more,
its Morningstar Risk rating was below average (indi-
cating that it had milder-than-average volatility)
for all three periods. That’s a powerful combination.
U.S. Fixed-Income Fund Manager of the Year
Jerome Schneider
PIMCO Short-Term PTSHX
It is unusual to see a manager nominated for the
performance of a fund in the ultrashort-bond
Morningstar Category, a relatively conservative group
typically run with durations of less than a year.
However, in a year when short-term rates rose sharply
and many bond funds failed to earn a positive
return, Jerome Schneider’s performance at PIMCO
Short-Term stands out. This fund earned a 1.37%
return in 2015, placing it in the top 1% of the ultra-
short-term bond category. The fund’s returns also
compare strongly with the short-term bond category
norm, where portfolio durations range between
roughly 1.0 and 3.5 years. Schneider actively adjusted
the fund’s curve positioning and rate sensitivity over
the course of the year, which contributed a healthy
portion of its returns. Schneider maintained a very
short duration for the first half of the year, even briefly
taking duration into slightly negative territory in
January and February. He then lengthened duration
modestly later in the year, generally avoiding issues in
the ultrashort reaches of the curve, sensitive to chan-
ging expectations surrounding Federal Reserve policy.
U.S. Allocation Fund Manager of the Year
Michael Reckmeyer and John Keogh
Vanguard Wellesley Income VWINX
Stability has been the key to this fund’s success.
Unlike many conservative-allocation peers, it doesn’t
make tactical shifts between stocks and bonds.
Michael Reckmeyer invests between 35% and 40%
of the fund’s assets in equities that pay above-
average dividends, which he tries to buy when they
are out of favor. Meanwhile, John Keogh tilts the
remaining 60%–65% bond portion toward corporates
rated in the A range, and he eschews big interest-
rate bets. The duo uses the market’s fluctuations to
rebalance the fund’s mix of stocks and bonds
and relies primarily on security selection to come
out ahead. The fund boasts a superior longer-
term record. Since the shared tenure of fixed-income
manager Keogh and equity manager Reckmeyer
began in July 2008, the fund’s 7% annualized gain
through December 2015 places second out of
about 140 peers, while its Morningstar Risk-Adjusted
Return places first.
U.S. Alternatives Fund Manager of the Year
James Troyer, Michael Roach, and James Stetler
Vanguard Market Neutral VMNIX
This team was also nominated in 2014. Simply put,
Vanguard Market Neutral has produced what
investors want from alternative strategies: very low
correlation, solid returns when equity markets go
south, and, on top of that, the lowest fees of any alter-
natives fund. The three managers are all long-tenured
members of Vanguard’s quantitative-equity group;
James Troyer has been a named manager on the fund
since 2007, while Michael Roach and James Stetler
were added in 2012. Vanguard has been the sole man-
ager of the fund since October 2010, when it dropped
AXA Rosenberg as a subadvisor. From that point, the
fund’s 4.2% annualized return and 0.95 Sharpe ratio
are the best in the market-neutral category through
December 2015. The lowest minimum investment is a
steep $250,000, as Vanguard wants investors to
go through financial planners to get to the fund. K