The Greatest Mutual Fund Managers With Bear Market Experience

This bull market has lasted so long that an awful lot of mutual fund managers have never seen a bear market. In this update of the greatest mutual fund managers, I take a look at the ones who have bear market experience in the best and worse sectors so far this year.

Great fund managers are few and far between. In most cases, it takes 10 years before a track record is long enough to say whether a manager has exhibited investment skill. I used Morningstar’s database to find managers who have outperformed both the S&P 500 and their category benchmark. Click here to download a spreadsheet listing all the funds that passed muster.

Technology Funds On Top

According to Morningstar, Technology is the best performing sector with a 25.61% return this year far ahead of the S&P 500 which is up 18.13%.

If you invest in a Technology fund, you really want a manager who has seen a full market cycle. At this time, Managers with less than 10 years at the helm have only experienced a bull market. They weren’t in charge during the Great Recession (which ended in mid-2009) or when technology crashed in 2000 so we don’t know how they will handle the next tech downturn. There are 172 funds in this category, but 123 of them have managers with less than 10 years at the helm.

The two funds at the top of the year-to-date ranking are both Fidelity funds focusing on Semiconductors, a narrow subset of Technology. Fidelity Advisor Semiconductor (FELIX) and Fidelity Select Semiconductor (FSELX) are managed by Stephen Barwikow who has beaten the Technology benchmark for the past 10 years. However, I question whether Technology is the right benchmark for him since he can only invest in Semiconductors.

If you choose either of these funds, keep your allocation small and see how Barwikow does in the next downturn. Since these funds have to invest in Semiconductors, there is almost nowhere for this manager to go when semiconductor stocks are over-valued.

The next two funds on the list are Firsthand’s Technology Opportunities (TEFQX) and Berkshire Focus (BFOCX). Both of which can invest across all tech stocks so they can get out of Semiconductors when they don’t like the sub-sector and the Technology benchmark is an appropriate one.

Kevin Landis and Malcolm Fobes have managed TEFQX and BFOCX for the past 20 and 22 years respectively. Both have lived through the Technology crash of 2000 and the Great Recession while outperforming the Technology benchmark and the S&P 500 for the past decade.

Healthcare Funds At The Bottom

Morningstar has the Healthcare sector up 8.14% year-to-date, far behind the S&P 500 (up 18.13%). The under-performance seems to be due to the increasing likelihood that our political leaders are going to make big changes to the healthcare system again.

Of the 112 mutual funds in the Healthcare sector, 55 have managers with less than 10 years at the helm. I would not invest in any of these funds.

The two Healthcare funds I’ve recommended in the past are Delaware Healthcare (DLHIX) and Fidelity Select Biotechnology (FBIOX).

Liu-Er Chen has managed Delaware Healthcare for 12 years and Rajiv Kaul has been at Fidelity Select Biotech for 14 years. Both have survived the Great Recession and the passage of the Affordable Care Act while still outperforming their benchmark and the market for the past decade.

Year-to-date, DLHIX is up 9.17%. FBIOX is up 14.89%. Both managers have lagged the market but outperformed their benchmark, which is what I expect from a skilled manager.

There is a school of thought that the best time to invest in a manager is when their stocks are out of favor because that’s when their stocks are cheapest. If you have money you can invest for three to five years, consider these two managers

My Take: As the market has recovered from 2018’s 4th quarter, stocks are getting to be pretty richly priced. It’s time to prepare for what happens when the bull market ends.

Mutual funds are still the way most people invest their money. However, there are precious few fund managers who have proven themselves in a bear market.

This article is part of a series I write for those who invest in mutual funds. To be notified when the next installment is published, click here.