SamMamudi

NEW YORK (MarketWatch) — Research firm Morningstar Inc. on Tuesday named its top mutual-fund managers for the past decade, with Bill Gross of Pimco and Bruce Berkowitz of Fairholme Fund taking the domestic honors.

Gross, who manages the world’s largest mutual fund, Pimco Total Return Fund PTTRX, +0.00% was named fixed income manager of the decade. His flagship fund had 10-year annualized returns of 7.7% over the decade. Berkowtiz, who was last week named Morningstar’s manager of 2009, steered Fairholme Fund FAIRX, -0.55% to 10-year annualized returns of 13.2% through Dec. 31. See story about Berkowtiz’ manager of the year win.

Morningstar’s international stock manager of the decade was David Herro, manager of Oakmark International Small Cap Fund OAKEX, -0.13% and Oakmark International Fund OAKIX, -0.53% which had 10-year annualized returns of just over 10% and 8%, respectively.

Both managers benefited from the fact they use value-based strategies in a decade which saw value typically outperform growth — for instance the average large-cap value fund returned 2.5% annually while large-cap growth lost 2.1% a year.

But Karen Dolan, director of mutual fund analysis for Morningstar, said that Berkowtiz’ and Herro’s success was largely down to their stock-picking efforts — both managers run fairly concentrated portfolios, with Fairholme Fund holding about 20 stocks while Herro’s funds usually about 60 stocks.

Rather than just being a value decade, it was more of a decade of preserving capital and participating in the upside, said Dolan. These managers have very big leads over their peers and they got there by not looking like their peers or their benchmarks.

Fairholme Fund’s returns place it in the top 1% of its category over three, five and 10 years, according to Morningstar. Okamark International is in the top 10% for three-year returns, top 2% for five-year returns and top 1% over 10 years, while Oakmark Small Cap is in the lower half of its category over three years, in the top 36% over five years and in the top 20% for 10-year performance.

Berkowitz beat both the Standard & Poor’s 500 Index SPX, -0.61% and his Morningstar category by roughly 13 percentage points, and Herro’s International Fund outperformed its category by five percentage points, while Small Cap Fund outperformed its category by about four percentage points.

That really is down to the managers, said Dolan.

Bond winner

Dolan said Gross’ achievement is all the more impressive given the size of Pimco Total Return, which according to Morningstar has about $192 billion in assets under management. The fund is in the top 1% of its category for three and five years and top 3% over 10 years.

Getting good results with a fund that big is the biggest feather in Gross’ cap, said Dolan. It speaks volumes about his investing abilities.

Gross also runs Managers Pimco Bond Fund MBDFX, -0.19% a $1.2 billion fund which has 10-year annualized returns of about 7.5%, placing it in the top 3% of its category, and the $6.2 billion Harbor Bond Fund HABDX, -0.08% which also returned roughly 7.5% a year over 10 years, and was in the top 4% of its category. Harbor Bond Fund is a Morningstar analyst pick.

Total Return Fund’s size, and growth, does raise questions about its ability to generate category-leading returns in the years ahead. Morningstar estimates that it took in $50 billion in 2009 alone.

This award is for the last decade, and the question is can Gross continue at this pace with this level of assets, said Dolan.

Dolan noted, however, that Total Return had $32 billion in assets in 2000 — that doesn’t seem much now, but it was quite the behemoth back then.