In a low-volatility U.S. equity market that seemed to churn ever upward, it was hard not to make money in 2017. But this year's nominees distinguished themselves with strong stock-picking, with some taking advantage of favorable tailwinds for large caps and tech firms and others finding hidden gems.
Their 2017 results are only part of what makes these managers special, however. The Morningstar Fund Manager of the Year awards have always strived to recognize both recent and long-term achievements. To qualify, managers' funds must have Morningstar Analyst Ratings of Gold or Silver.
They must also have impressive absolute, relative, and risk-adjusted returns not only in the year ended Dec. 31 but also over their tenures, and we prefer managers with terms of at least five years at the helm. It helps if the managers have delivered outstanding results for a significant number of shareholders over time and exhibited histories of close alignment with shareholders.
Our finalists navigated geopolitical challenges at home and abroad, high valuations often belied by only modestly improving earnings and increasing debt, and a rising market tide that lifted almost all boats regardless of quality. Although it has been hard for active managers to beat U.S. stock indexes in recent years, these managers' rigorous research, time-tested processes, and investment skill have set them apart in today's market. Here are the finalists:
Fidelity Growth Company
2017 Return: 36.8%
2017 Morningstar Category Rank (Percentile): 5
Steven Wymer has run Silver-rated Fidelity Growth Company since 1997. His penchant for firms operating in fast-growing niches with above-average top-line growth prospects and distinctive products often leads him to technology and healthcare stocks, two of the fund's largest sector weightings. In addition to the so-called "FANG" stocks, Wymer has scored with picks across the market-cap spectrum. He first bought top holding Nvidia
as a mid-cap name in 2008, and the stock rose 82% in 2017. A more recent offbeat addition, Shopify , also stoked the fund's 2017 results. In all, the fund's 36.8% advance in 2017 topped 95% of its large-growth Morningstar Category peers and trounced its Russell 3000 Growth Index benchmark's 29.6% tally. Over Wymer's tenure, the fund's 10.9% annualized total return is 3.7 percentage points higher than the category average and easily ahead of the index's 7.8% advance. These attractive long-term results have drawn investors' attention through the years, and this $75 billion strategy has been closed to new investors since 2006 to protect Wymer's ability to invest in the small- and mid-cap names that spice up this portfolio.
T. Rowe Price Blue Chip Growth
2017 Return: 36.6%
2017 Morningstar Category Rank (Percentile): 6
Larry Puglia, the sole manager of Gold-rated T. Rowe Price Blue Chip Growth since its 1993 inception, has produced consistent results thanks to his own insights and T. Rowe Price's well-regarded analyst bench. Puglia favors firms with durable growth prospects, keeping a diversified portfolio that mixes aggressive with cautious growers and making bigger bets on strong franchises. The fund's bets on technology and consumer discretionary stocks, particularly its large stakes in Amazon.com
, boosted its 2017 results, and out-of-benchmark picks Alibaba
and Tencent were also big winners. The results speak for themselves: The fund's 36.6% rise in 2017 beat 94% of its large-growth category peers and was well ahead of the Russell 1000 Growth Index's 30.2%. Under Puglia, the fund gained 11.0% annualized through December 2017, 1.6 percentage points higher than its benchmark and solidly ahead of the category's 8.3%. This $72.6 billion strategy remains open to new investors.
Harbor Small Cap Value
2017 Return: 21.6%
2017 Morningstar Category Rank (Percentile): 2
Silver-rated Harbor Small Cap Value's 21.6% rise in 2017 stood out in a year dominated by large-cap growth stocks. But it's no flash in the pan; Paul Viera, of subadvisor Earnest Partners, has steered this relative-value fund to success in various markets since its 2001 inception. Viera and a 10-member investment team use a robust, proprietary screen to sort stocks based on their expected response to different financial conditions. The team then delves into firms' fundamentals to build a portfolio of about 60 attractively positioned names. Keeping turnover low and an eye on risk, Viera rode some long-term winners to 2017's strong showing. A heavy technology weighting paid off, with top holding Coherent , first purchased in 2012, doubling for the second consecutive year. The fund's 2017 tally landed near the top of its small-blend category and easily surpassed its Russell 2000 Index benchmark's 14.7% gain. Coupled with strong relative results during both the financial crisis and 2011's sluggish market, Viera's record over his 16-year tenure is top-decile versus peers. Although this $3.9 billion strategy is nearing capacity, the fund is open to new investors.
T. Rowe Price New Horizons
2017 Return: 31.5%
2017 Morningstar Category Rank (Percentile): 10
Despite having the shortest tenure of this year's nominees, Henry Ellenbogen has generated a strong record at Silver-rated T. Rowe Price New Horizons since taking the helm in March 2010 and previously posted stellar results at T. Rowe Price Media & Telecommunications
. Unlike the two large-growth nominees, Ellenbogen focuses on promising, up-and-coming small-growth companies, hunting for innovative firms with strong corporate cultures and good business models. He has an especially keen eye for opportunities in the private markets, where his risk-conscious approach and due diligence have led to more winners than losers. The fund's strong 2017 performance owed partly to companies the fund first owned privately, such as Atlassian , or bought shortly after their IPOs, including Shopify and TransUnion , but longer-term holdings such as CoStar Group
also contributed. The fund's 31.5% gain in 2017 blew past the Russell 2000 Growth Index benchmark's 22.2% and the small-growth category's 21.5%. Its 18.8% annualized gain from Ellenbogen's start through December 2017 beat nearly all peers, with solid risk-adjusted returns to boot. Impressively, Ellenbogen has posted these results with a huge asset base of more than $20 billion. The fund closed to new investors in 2013.
Morningstar analysts Katie Reichart and Christopher Franz contributed to this article.