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Boston Capital

Manager took mutual fund from beaten up to best

CHARLIE MAHONEY FOR THE BOSTON GLOBE

There is no shortage of happy mutual fund managers this year.

Regardless of how they compared with competitors, the vast majority of fund managers will close the books on 2012 with solid profits. Broad gains in both the stock and bond markets became a powerful tide that lifted mutual fund returns.

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So whom do you single out among all of Boston’s many fund managers this year?

I chose Chuck Myers as the 12th annual Boston Capital mutual fund manager of the year, an award based on admittedly subjective analysis. He joins past winners that include the likes of Will Danoff, Joel Tillinghast, Dan Fuss, Ken Heebner, Maura Shaughnessy, and Dan Rice.

Myers, 37, is the manager of two funds that did well in 2012, but I selected him based on the performance of the $3.5 billion Fidelity Small Cap Discovery Fund. That fund is invested in smaller companies, a blend of growth and value stocks.

The Fidelity Small Cap Discovery fund has gained 22.4 percent so far this year, placing it among the top 2 percent of hundreds of comparable funds, according to Morningstar Inc., the Chicago financial data firm. The fund’s returns are far above those of its benchmark index, the Russell 2000.

Even more impressive is that for the five-year period, Fidelity Small Cap Discovery is the top fund among 502 competitors, with an average annual return of 11.9 percent.

The seeds of that story — the big gains of 2012 and over the past five years — were sown in the midst of the stock market collapse in 2008. His fund had suffered along with the rest of the small-stock sector — shedding about half of its value by early 2009. When the market came back, Myers concluded, his fund would lag behind competitors unless stocks in the portfolio had the potential to really take off.

“When the market was in incredible turmoil I came to the conclusion that unless every stock in my fund had at least 100 percent upside I was going to underperform coming out,” Myers said. “I turned over the entire fund over six months and positioned myself in really beaten down stocks.”

Some of those stocks were auto dealers, such as Asbury Automotive Group and Group 1 Automotive Inc.. Others were real estate investment trusts: SL Green Realty Corp. and Alexandria Real Estate Equities Inc.

At the time, you could describe those stocks with three words: cheap, cheap, cheap. Myers and Fidelity analysts combed through a long list of inexpensive small stocks, looking for companies that would probably not need to raise additional money, a factor that could have diluted the future value of the shares.

“For me, that time was depressing because we were losing money, but it was also exhilarating because the values we got won’t be seen for a very long time,” Myers said.

Shares of home-building companies were also among the beaten-down stocks he bought at the time and those investments have become the biggest driver behind this year’s performance by Small Cap Discovery.

He piled into KB Home (up 127 percent so far this year), MDC Holdings Inc. (up 101 percent in 2012), and Meritage Homes Corp. (up 57 percent).

Myers became hooked on investing during another period of stock market crisis, as a 12-year-old growing up in the suburbs of Cleveland in 1987. His father, a podiatrist, made Myers an offer he couldn’t refuse: Select an investment together and the boy could keep the profits. If the pick didn’t work out, his father promised to eat the loss.

Their choice, First Australia Income Fund, turned out to be a so-so performer, but it sparked a passion for investments. Myers entered a national stock-picking contest at age 15 and finished second. As a high school junior, he started investing the money his parents had saved for college.

Myers was 18 when he started calling executives at small public companies to interview them about their businesses. He stuck to small and micro-cap stocks for a simple reason. Managers at those companies would take his calls.

He became interested in Steven Madden Ltd., the shoe company, and talked Madden himself into seeing him as an investor in 1994. The meeting got off to a rocky start. “His first question was, ‘How old are you?’” Myers recalled. “I said it was the wrong question. Ask me how many shares I own.”

Myers concedes he was a “precocious” investor in those days. But he credits his stock-picking skills as a big reason why he was able to graduate with undergraduate and MBA degrees free from any student loans.

Soon after college, Myers joined Fidelity. He has spent all but two of his 14 years at the company working among small-stock researchers and managers. Today, he makes a point of acknowledging stock analysts and other Fidelity managers in that group — particularly Tillinghast and Jamie Harmon — for contributions to his fund’s success.

Myers isn’t big on investment themes. He doesn’t care for sector bets or market-timing calls. He doesn’t know where interest rates are headed or what will happen in Washington. His strategy at Fidelity Small Cap Discovery remains focused on picking stocks — selecting about 70 investments from among more than 2,000 smaller public companies.

That strategy has created a portfolio heavy on names you’re unlikely to recognize: Chemed Corp., Team Health Holdings Inc., and Monex Beans Holdings Inc.

It’s also produced one the mutual fund industry’s best-performing small-stock funds, year in and year out, for the past five years.

And it has made Chuck Myers­ this year’s Boston Capital manager of the year.

Steven Syre is a Globe columnist. He can be reached at syre@globe.com.
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