Scroll down the list of top-performing equity mutual funds and a lot of familiar names pop out—Kenneth Heebner, Chuck Royce, John Calamos, and more. All have had success going against the market's conventional wisdom. But with most of these legendary investors up there in years—Royce was managing money before the Beatles came to America, and Heebner started his first job as U.S. combat troops entered Vietnam—who are the maverick fund managers of the future?
No simple screening criteria will neatly reveal the next Ken Heebner. "It's a matter of truly understanding a manager's strategy to see who's doing something genuinely different," says Russel Kinnel, Morningstar (MORN)'s director of fund research. To identify the next wave of out-of-the-box thinkers, we informally polled fund industry experts and managers, pored over registration filings for new funds, and tracked managers' records across different employers.
What follows is a highly subjective list of managers who go their own way to outdo their rivals. We avoided those who are already widely recognized, won industry awards, or whom we've written about recently, such as John Schneider of Touchstone Large Cap Value Fund (TOCAX) and Jerry Jordan of the Jordan Opportunity Fund (JORDX). And, as all the ads say, past performance is no guarantee of future results—and some promising managers may exit the game. One candidate suggested by several analysts, Fidelity Investments manager Darren Maupin, quit the firm (and the fund business) in December. It goes without saying that fans of the efficient market theory should stick with low-cost index funds.
ZACHARY LIGGETT
As co-manager of the Utopia Growth Fund , Zach Liggett has spent the past five years working from the small Michigan resort town of Traverse City. The 33-year-old is the equities expert among the three managers at Financial & Investment Management Group, which started out catering to wealthy families and didn't open a mutual fund until 2005. So you can't find Utopia by searching for top-performing growth funds over the past 5 or 10 years. Too bad, because it has a stellar record using the same style for private clients. Over five years, Liggett's growth investments gained an average 17% a year after fees, beating the Standard & Poor's 500-stock index by over four percentage points a year.
After identifying big global themes, like the growing need for clean water, Liggett narrows his focus to a few stocks that best embody the trend. Utopia funds can short stocks, and after a hot string of worldwide initial public offerings of solar stocks, Liggett is searching for the frothiest solar play to bet against. "It's gotten completely irrational," he says. He also looks for obscure equity and debt securities issued in small amounts that bigger funds may overlook.
Liggett loves to wade into industries that everyone else seems to hate. That helps explain his current interest in newspaper stocks. New York Times Co., Gannett, and Washington Post have all been crushed yet appear to have substantial cash flow and good ideas about how to expand online, Liggett says: "We're not afraid...to hold our nose when things look ugliest."
Being so far from the money capitals of the world hasn't hurt Liggett's research efforts. He's got his BlackBerry and Bloomberg terminal, after all. When he wants to kick back, he's a lot closer to trout streams, snowshoe trails, and his favorite kayaking spot than his cohorts are in New York and Boston. "With that fresh air to breathe, it's no problem recharging my batteries," Liggett says.