Morningstar: Best Fund Managers of 2006

Morningstar, the mutual fund ratings service, named its fund managers of the year today. Morningstar analyst and regular CNBC guest Christine Benz was on “Morning Call” to discuss the three winners.

It was both O. Mason Hawkins and Staley Cates of the Longleaf Partners Fund and Longleaf Partners Small-Cap taking the domestic category. The funds year-to-date returns were 21.6% and 22.3%, respectively. Benz says these two managers love to “back up the truck for unloved companies,” and a number of the companies – such as General Motors and Comcast – did well last year.

In the international sector, David Herro of Oakmark International took the prize. His fund returned a whopping 30.6% year-to-date. He’s another deep value manager, Benz says. Herro “loves things when everybody hates them.” Some investors may think that after such strong returns they should put their new money elsewhere--but Benz says Herro’s value strategy keeps his portfolio fresh. As certain stocks overheat, Herro pares down and reinvests elsewhere in the market. Benz says this provides a good buffer against stocks with thinning margins.

Finally, Jeffrey Gundlach won the prize for fixed-income fund manager. He runs the TCW Total Return fund, which returned 5.28%. Gundlach invests mainly in mortgage-backed bonds.