Manning-Napier, American Funds outpace S&P 500

Manning & Napier Advisors and American Funds are leading the pack of six mutual-fund managers with the longest record of beating the Standard & Poor's 500 Index now that Bill Miller's 15-year streak is over.

The no-load Manning & Napier Pro Blend Maximum Term Series Fund reported the highest returns last year of the large-company funds that have outperformed the S&P 500 for eight years, according to Chicago research company Morningstar.

Miller's $21 billion Legg Mason Value Trust rose 5.9 percent in 2006, trailing the 15.8 percent advance of the U.S. market benchmark. Like Miller's Value Trust, the six funds buy out-of-favor shares perceived as cheap relative to financial yardsticks such as earnings, as well as stocks of companies whose profits are growing at above-average rates.

"These are all funds that bear no resemblance to the S&P 500," said Christine Benz, director of mutual-fund analysis at Morningstar. "That's how Miller built his performance record."

The $309 million Manning & Napier fund rose 20.5 percent last year and the $38 billion American Fundamental Investors fund, run by a team at Los Angeles-based Capital Group, climbed 19.2 percent.

Returns of the $2.5 billion Cambiar Opportunity Fund, the $308 million Target Growth Allocation Fund, the $1.7 billion Goldman Sachs Growth Strategy Portfolio and the $3.4 billion T. Rowe Price Spectrum Growth Fund also have exceeded the S&P 500 for eight years.

Investors shouldn't invest in a fund just because it outstripped a benchmark, Benz said. Skilled managers, including Miller, will have years in which they trail their target indexes.

"You have to be willing to sit tight through it," she said. "I appreciate the fact that Miller's sticking with his basket of holdings."

Miller's fund rose at an average annual rate of 15.7 percent since 1991, topping the 11.8 percent advance of the U.S. stock benchmark. Last year, the fund ranked last of 108 "multicap value" funds tracked by Bloomberg. Miller declined to comment.

Five of the six funds have Morningstar's highest rating of five stars. The Target fund got four stars. The rating system takes into account a fund's diversity, risk profile, fees and manager tenure. The Legg Mason fund has three stars.

The Manning & Napier fund gained on investments in computer-related companies such as Cisco Systems, and cable-television providers including Comcast. Shares of San Jose, Calif.-based Cisco rose 60 percent in 2006, and Philadelphia-based Comcast advanced 63 percent.

"The stock picking focused on more growth-oriented companies that weren't sensitive to the economic cycle," said Jeff Coons, co-director of research at Manning & Napier in Fairport, N.Y., and one of eight people who manages the fund.

Coons' team increased technology stocks to 18 percent of assets in September from 11 percent a year earlier.

The fund's fourth-largest holding, Research In Motion, maker of the BlackBerry e-mail phone, jumped 94 percent in 2006. The Ontario-based company signed up 875,000 subscribers in the third quarter, exceeding expectations. American Funds' Fundamental Investors benefited from a 12 percent stake in oil and gas companies, including Calgary-based oil-sands miner Suncor Energy, its largest holding. The stock rose 26 percent last year. The company is increasing production from oil-sands deposits in Alberta estimated to hold the largest oil reserves outside of the Middle East.