Top 20 US portfolio managers: Performance trumps returns

What does it take to be named the best portfolio manager in the business?

Some commentators point to those generating the highest returns as deserving of this crown. However, managers might be at the top purely because the markets they invest in went supernova and they eked out a little bit more than the index, or just hugged it.

That would indicate good fortune more than ability. In a world where everything can be tracked and packaged into an exchange-traded fund, this kind of portfolio manager is not particularly enticing.

Top 20 U.S. portfolio managers*

Contributing Fund(s)
1 Matthew Dalton Transamerica Rye Brook, N.Y. Transamerica Intermediate Muni
= Brian Steeves Transamerica Rye Brook, N.Y. Transamerica Intermediate Muni
3 Rahul Narang Columbia Threadneedle Investments Boston Columbia Global Technology Growth Fund
4 Robert Rifkin Wells Fargo Boston Wells Fargo Special Small Cap Val Fd
5 Nitin Jain ALPS Advisors, Inc. Mumbai, India ALPS/Kotak India Growth Fund
6 Scott R. Romans Nuveen Fund Advisors Inc Chicago Nuveen California Municipal Bond Fund
7 Vincent Montemaggiore Fidelity Management & Research Co. Boston Fidelity Overseas Fund
8 James Hunt Tocqueville Asset Management New York Tocqueville International Value Fund
9 Michael B. Han Matthews Asia San Francisco Matthews Korea Fund
10 Stephen Peak Henderson Global Investors London, U.K. Henderson European Focus Fund
11 Robert B. Bruce Bruce and Company, Inc. Chicago Bruce Fund
= R. Jeffrey Bruce Bruce and Company, Inc. Chicago Bruce Fund
13 Rezo Kanovich Oppenheimer Funds International New York Oppenheimer International Small-Mid Company Fund
14 Gary Greenberg Calvert Funds Bethesda, Md. Calvert Emerging Markets Equity Fund
15 Robert H. Bergson Northern Trust Chicago Northern Small Cap Core Fund; Northern Small Cap Value Fund
16 Eric Rothman AMG Funds Plymouth Meeting, Pa. AMG Managers Real Estate Securities Fund
17 Andrew Foster Seafarer Capital Partners, LLC San Francisco Seafarer Overseas Growth and Income
18 Duncan Evered Brown Capital Management Baltimore Brown Capital Management International Eqty
= Martin J. Steinik Brown Capital Management Baltimore Brown Capital Management International Eqty
= Maurice L. Haywood Brown Capital Management Baltimore Brown Capital Management International Eqty
Source:* Note: All managers rated "AAA" by Citywire.

Relative performance, which factors in the risks to which investors were exposed in order to generate returns, is a much more meaningful way to judge manager skill.

A portfolio manager plays a very key role in the financial world. He or she is either a person who makes investment decisions using money other people have placed under their control or a person who manages a financial institution's asset and liability (loan and deposit) portfolios.

In the table below, Citywire runs down the top 20 portfolio managers in America over the last three years on a risk-adjusted basis for the amount of value they added above their benchmarks for every unit of risk taken.

"Relative performance, which factors in the risks to which investors were exposed in order to generate returns, is a much more meaningful way to judge manager skill."

Taking top spot on this list, which was vetted from 3,700 eligible portfolio managers, are Matthew Dalton and Brian Steeves, managers of the Transamerica Intermediate Muni fund.

The pair, who sub-advise from Belle Haven Investments, have smashed the intermediate benchmark over three years through March 31, returning 19 percent compared with a 10 percent gain in the index.

The portfolio is heavily overweight Illinois, with 18 percent of the $650 million fund invested there. This is a position that comes at the expense of the two largest issuing states, with both California and New York having fairly small allocations of 10 percent and 6 percent, respectively.

Dalton and Steeves are not the only municipal bond managers to make the grade, with Nuveen Investment's California muni specialist Scott Romans coming in at sixth on the list.

Municipal bonds have been one of the few bright spots for active managers in what has been a savage start to the year. There were $7 billion of net inflows into actively managed funds in the sector during January and February, which is in stark contrast to the $37 billion of net outflows endured by active funds as a whole over the same time period. However, with yields reaching multidecade lows, it is not clear how long this run can be sustained.

Within U.S. equities, only managers of smaller companies have added enough value to make the top 20 portfolio ranking. Robert Rifkin, manager of the $846 million Wells Fargo Special Small Cap Value fund, is fourth, and Robert Bergson, lead manager on Northern Trust's Northern Small Cap Core and Northern Small Cap Value funds, is 15th.

The top international equity name on the list is equity manager Nitin Jain, who is ranked fifth. Denver-based ALPS hired the services of Jain's Mumbai-based Kotak Mahindra to run their Indian strategy in 2011, and the results have been compelling.

The Indian equity market has been a volatile proposition over the past three years, and despite poor performance over the last 12 months, this portfolio has netted investors 39 percent, compared to just a 16 percent gain made by the Nifty TRI index.

Jain is not the only emerging markets specialist on this list, with broad emerging markets managers Gary Greenberg of Calvert Investments and Andrew Foster of Seafarer Capital Partners ranking 14th and 17th, respectively.

It has been a troubling three years for emerging markets, but there are whispers that the money may finally be flowing back. Both of these players have kept their investors in the black, returning 5 percent each against a market that has fallen 12 percent. This is no mean feat and bodes well for future investment opportunities.

In at No. 10 on the list is London-based European equity manager Stephen Peak of Henderson Global Investors. Henderson is one of the top groups globally in this sector, and this strategy is exclusively for American investors.

As with municipal bonds, there has been a lot of attention from U.S. investors for European equities as the domestic equity rally runs out of steam. It is worth highlighting that this fund is 40 percent invested in Peak's native U.K., but not to the detriment of returns.

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Just beneath Peak are the only mixed-asset portfolio managers inside the top 20: father-and-son duo Robert B. Bruce and R. Jeffrey Bruce. They manage the $565 million Bruce Fund.

They let their performance do the talking, and talk it has, returning 31 percent over the last three years. Their balanced strategy is around 50 percent in equities, 25 percent in bonds, with the remainder in the money market.

— By Frank Talbot, head of U.S. investment research at Citywire