Analysts Gain Clout at Mutual Funds

Buy-side analysts' stature is rising as shown by the rise of analyst-run mutual funds, even as sell-side research has regained little if any ground lost to scandals early this decade.

A number of mutual fund companies are reporting strong performance numbers for sector funds whose research analysts wield influence on a par with portfolio managers elsewhere in the industry, The Wall Street Journal reports.

"The old standard was that you had a couple of star portfolio managers running everything, but now we are seeing a shift, and I think it's working out better for investors," Tom Roseen, senior analyst at fund researcher Lipper Inc., told the Journal.

Fidelity, MFS, Putnam

Putnam Investments, for instance, this year launched six analyst-run global funds that each focus on a particular industry. One specialized fund, Putnam Global Financials, is up 36 percent through Sept. 24 and is outperforming 85 percent of other financial funds, according to Morningstar data.

MFS Investment Management's MFS Research fund, described as a vehicle for MFS analysts' best picks, boasts returns in the top 10 percent of peers over the past three years and five years. And MFS Chief Executive Robert Manning says the firm gives its analysts greater weight in the stock-selection process for all MFS funds than do most other fund companies. Elsewhere in the industry, Manning says, analysts are almost "second class," and fund managers often "ignore what the analysts say or don't respect it."

Fidelity Investments also is bolstering the role of its research team. A few years ago Fidelity began de-emphasizing the traditional approach of rotating analysts frequently among sectors to groom them for eventual roles managing diversified portfolios. In its place, the big mutual fund firm created a "career analyst" track and allowed analysts to continue following one industry so as to build up deep expertise.

While Fidelity's stock funds on the whole fall near the middle of their peer groups over the past one, three and five years, its Select Portfolios - 41 concentrated stock funds run by Fidelity sector analysts - are outperforming most of their respective peer groups. Fidelity Select Retailing fund ranks first in its sector for all three time periods, with a 46 percent gain in 2009.