Morningstar Awards for Investing Excellence: Outstanding Portfolio Manager Nominees
Today, Morningstar announced the nominees for its 2023 Morningstar Awards for Outstanding Investing: Outstanding Portfolio Manager. They are Columbia Threadneedle’s Scott Davis, T. Rowe Price’s David Giroux and BlackRock’s Rick Rieder.
The nominees are drawn from a pool of investment strategies that receive Gold or Silver Morningstar Analyst Ratings for at least one vehicle or share class. They are distinguished by their long history of consistent results, disciplined but not hidden investment philosophies and processes, and commitment to investor interests. All three deserve recognition for their talent, diligence and thoughtful approach, but Morningstar will announce a winner later this month, in addition to the Exemplary Steward award winner.
Here’s more on why each nominee stands out.
Scott Davis, Columbia Threadneedle
Davis is perhaps the least-known candidate. He runs a large fund — the $36.3 billion Columbia Dividend Income GSFTX — and has delivered strong results but maintains a low profile. This is not only because of his temperament, but also because of his approach, which is not designed to produce flashy results every year; Rather, it is designed to quietly and steadily return investors’ capital over time.
That’s what Davis did. From Davis’ tenure in early November 2001 to late February 2023, Columbia Dividend Income has outperformed the major Morningstar category and the Russell 1000 and Russell 1000 Value indices in absolute and risk terms, with annualized returns of nearly 9% for its institutional stocks. adjusted conditions. The fund has also been competitive with passive dividend offerings such as the Vanguard Dividend Appreciation ETF VIG and the Vanguard High Dividend Yield ETF VYM since its inception in 2006. During Davis’ run, Columbia Dividend Income institutional stocks turned a $10,000 investment into more than $62,500 by the end of February 2023, while the same total in the Russell 1000 Value and Russell 1000 indices was about $50,400 and $58,900 respectively.
These results required a delicate balancing act. Davis looks for stocks that not only offer compelling returns, but also profitable business models that allow their companies to continue paying and even growing dividends. That’s easy to say, but hard to do. It takes research and judgment to avoid stocks that offer high yields because of their distressed underlying businesses or firms that tend to suspend or cut their payouts when conditions are poor. Davis, who will retire this June after 38 years in the industry, has done a commendable job of avoiding such dangers. As a result, the strategy offers consistent downside protection and enough upside participation to create one of the more robust risk-reward profiles among active US equity funds.
David Giroux, T Rowe Price
Giroux has been here before. The manager of T. Rowe Price Capital Appreciation PRWCX was named Morningstar Allocation Manager of the Year in 2017 and 2012 and has been a frequent contender in other years. It’s not difficult to understand why. Giroux, who is now also CIO and Head of Investment Strategy at T. Rowe Price Investment Management, has been one of the most diverse and consistently excellent active managers of the past two decades. The strategy has rarely finished a calendar year behind the allocation — since Giroux ranked at the top fourth position in the 50% to 70% stock category in 2006. While T. Rowe Price Capital Appreciation suffered some brief, sharp declines as it took additional risk a little too soon, it recouped the additional volatility with superior absolute and risk-adjusted results on Giroux’s watch. Its annualized return of 9.3% from July 2006 to February 2023 easily outperformed the peer group median and the Morningstar Moderate Target Risk Index, and even matched the pure stock return of the S&P 500 during that time with far less volatility.
Giroux has proven adept at picking stocks and bonds and setting the strategy’s overall asset allocation, but he hasn’t been resting on his laurels. Giroux was able to step down, evaluate and evolve its process over time. In 2018, he began trimming the portfolio’s stock holdings from 50-70 to around 40 because his analysis showed the fund was better off focusing on its best ideas. He has also created custom sectors for S&P 500 stocks to better understand their relative valuations and risks.
A contrary course has served Giroux and its investors well. He made timely portfolio decisions against the grain. And while a track record like this might tempt other companies to convert the strategy into an asset-raising dreadnought, T. Rowe Price has closed it since June 2014 to preserve Giroux’s investment flexibility, a decision he appreciates and supports .
Rick Rieder, Black Rock
In 2010, Rieder acquired a fixed income firm still reeling from the global financial crisis and managerial turnover and built it into one of the strongest fixed income investing teams in the industry. Since then, Rieder, who runs BlackRock Strategic Income Opportunities BSIIX and BlackRock Total Return MAHQX, among others, has weathered credit sell-offs and rallies, falling and rising interest rates, liquidity crunches, crashes in emerging markets, global recessions, a pandemic and the 2022 bond bear market. His approach has helped him stay the course and achieve long-term success in multiple categories.
This approach involves devouring copious amounts of research, distilling it into a diversified collection of small bets rather than a few large bets, and monitoring risk like a border collie patrolling for strays and wolves. Rieder is known for his insatiable and omnivorous appetite for data and his command of the smallest details of everything from global monetary policy to the smallest positions in the many strategies for which he is a named manager. However, his focus on risk control keeps Rieder from getting too attached to an idea and betting the farm on it. Rieder fights for every basis point of performance, admitting nothing and deconstructing successes and missteps to draw lessons for the future. For example, he concluded that underestimating China’s support for the real estate sector in 2021 would cost BlackRock Strategic Income Opportunities 30-40 basis pointsof performance — a very small fraction of the strategy’s overall results — and he was still speaking to Morningstar analysts in early 2023.
Rieder has assembled a large and talented team to support him, but he’s orchestrating it. Under his watch, BlackRock Total Return, one of Rieder’s largest funds, has both its average core-plus bond category peer and relevant bond benchmarks, such as the Bloomberg US Aggregate Bond Index, on both an absolute and volatility basis during his tenure beaten. customized base.