Morningstar Advisor - Winter 2008 - (Page 64) Undiscovered Managers Mary Ellen’s business model is the best I’ve seen. My job is to not screw that up. Paul Purcell, CEO of R.W. Baird wants to ensure that cash flows don’t throw that off, even for a day. While such small measures may not seem worth the time for larger funds that take bigger bets, the team here is fighting for every last basis point. Jere McGaffey, a retired partner of Foley & Lardner in Milwaukee and a trustee for multiple trusts, believes in that approach. He has invested with this team for more than 15 years. “For a while, we had two bond managers,” McGaffey says. “As time kept going on, we felt Mary Ellen’s team was superior. When they left and went to Baird, I followed them. I like the basic philosophy: working off an index and trying to add some value to it. In any one year, somebody who has taken a bet on interest rates and was right is going to look better. When you look at Baird’s results over many years, though, they look very good.” Robert Gallagher, former president and COO of Associated Banc-Corp. in Green Bay, Wis., and member of the Green Bay Packers Corp. board of directors, invests part of the Packers’ Preservation Fund with the Baird team. “We knew about the team’s integrity, we knew their Firstar record, and knew they are risk averse,” Gallagher says, “but even though they didn’t take an inordinate amount of risk, they always seemed to beat the benchmark.” Over the years, the Packers also have had an investment banking relationship with Baird, which helped with raising the capital required to renovate Lambeau Field. Investing in Family Stanek’s track record is even more impressive when her other accomplishments are considered. She and her husband have raised three children, and she is actively involved in the community. She sits on several charitable boards, including that of the Boys and Girls Club of Greater Milwaukee. She’s the board chairwoman of her alma mater, Marquette University. Stanek says that all these things have made her a better manager, not worse. She’s gained perspective on investing while building the team the right way. This fact is illustrated in the recent hiring of Meg Hegarty, who had interned at Baird years ago. Hegarty had moved on to work for the asset-backed securities team at Deerfield Capital Management in Chicago, focusing on the management of collateralized debt obligations. The Baird team wanted to add to its mortgage- and asset-backed research efforts, and Stanek knew just whom she wanted for the post. Hegarty jumped at the offer. And while many might think a Milwaukee-based firm would have trouble attracting talent, Baird has found plenty of impressive homegrown individuals to fill its investment ranks and, in cases like Hegarty’s, has attracted people from larger cities. Yards of Success in a Game of Inches In the end, the measure of the Baird team’s success is best illustrated by the results they have delivered shareholders over time in offerings like the Aggregate Bond fund. While it might be tempting to ascribe much of that fund’s success to its low cost, it’s clearly not the whole story. The fund’s price tag provides it an advantage over costlier rivals, but when examining its five-year gross total return (that is, the return before fees are taken out) through Dec. 31, 2007, it still beats 70% of rivals. After fees, the fund jumps to beating 87% of peers. The team has talent, even apart from the fee edge, enough so that investors might also want to make a handshake deal of their own. Karen Dolan, CFA, is a senior mutual fund analyst with Morningstar. Lawrence Jones is a fund analyst with Morningstar. Better Than the Index: Returns of Baird Aggregate Bond Fund minus the returns of the Lehman Brothers U.S. Aggregate Bond Index over rolling threeyear periods since the fund’s inception. 2% 1.6 1.2 .8 03 Data as of Nov. 30, 2007. 04 05 06 07 64 Morningstar Advisor Winter 2008
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