Morningstar Advisor - Winter 2008 - 63

Stanek’s approach to managing money is partly the result of how and when she began her 12000 career. Initially, she resisted the path to finance. Her father was a banker, and Stanek wanted 11000 to try something different, law perhaps. Yet, And that’s the exact kind of atmosphere Stanek after graduating from Marquette University in was hoping to cultivate at Baird and one 10000 1978, she took an entry-level position on of the reasons she left Firstar. She wanted to the money-market team at First Wisconsin add investment resources and build a team (which later became Firststar) and never looked that could carry on for a very long time, and she back. While there, Stanek researched a didn’t want pressure to grow margins. Since new concept at the time, called “duration” joining Baird, the core fixed-income team (a measure of interest-rate sensitivity). has grown to more than a dozen professionals. “I’m worrying about building succession more In the late 1970s, inflation was running higher than two layers down,” Stanek says. than 13%, while short-term interest The Fight for Basis Points Began with Fees rates (measured by the federal funds overnight The group came to Baird heavy with talent, but lending rate) were 11% and soon to be light in assets. Stanek, however, wasn’t much higher, as the Fed struggled to regain jumping up and down demanding marketing control over an economy mired in stagflation. It support to attract assets. She took a much less was in this context—what Stanek has called traditional approach for a manager and “the worst bear market for bonds”—that she demanded the bond funds they launch at Baird got her start investing in fixed income. charge low fees. While that stance raised some eyebrows, as some at the firm were These formative years left their mark on how against the idea of a low-cost structure, Stanek Stanek and the team view risk. The team stood firm, and Purcell backed her. In fact, at decided in 1985, while still at Firstar, to take 0.30%, Baird’s bond funds are among the least one of the bond market’s largest risks expensive options for retail fund investors. effectively off the table. They made the pivotal decision to move their strategies to a “Mary Ellen’s business model is the best I’ve duration-neutral approach, not viewing seen,” Purcell says. “My job is to not screw interest-rate bets as a reliable way to that up.” As a result, he not only signed off on consistently add value. Thus, when managing low fees but has also supplied the team with their flagship fund, Baird Aggregate Bond the resources it needs and has never asked BAGIX, the team pegs the fund’s duration to it to shoot for growth in margins or assets, that of the Lehman Brothers U.S. Aggregate instead focusing on building the business “one Bond Index. client at a time” to ensure sensible growth. The team views their benchmarks as worthy Stanek clearly understands the constant fight competitors—a sensible posture, given for incremental returns that bond managers how many bond managers fail to beat them humorously stated “no jerks” hiring policy (not the exact term he used). In fact, the environment at Baird Advisors’ downtown Milwaukee offices in the U.S. Bank Center (at 42 stories, the tallest building in Wisconsin) is friendly and collegial. Members of the team, from the most junior all the way to Stanek, are comfortable tossing around their ideas and opinions. Everybody’s input matters. It’s not surprising, then, that since 2004 Fortune magazine has recognized Baird as one of the “100 Best Companies to Work For.” face. “It’s all about us being unselfish and having a value-added proposition,” she says. “The low fees put the funds on parity with our separate accounts.” And low fees have helped put returns ahead of the competition without forcing management to take a lot of risk. Looking to Risk First 13000 Mary Ellen Stanek Baird Aggregate Bond Inst BAGIX $13K 12 11 LB Aggregate Bond 03 04 05 06 07 Category Intermediate-Term Bond Morningstar Rating QQQQQ Minimum Investment $250,000 Expense Ratio (%) 0.30 Jan-03 5-Yr Anl Total Rtn (%) 5.16 5-Yr Anl Investor Rtn (%)* 5.29 Investor Rtn Rank Category 9 Stewardship Grade Jan-04 Jan-05 — Jan-06 Jan-07 Feb-03Jul-03 Mar-04 Sep-04Feb-05Jul-05 Feb-06Jul-06Dec-06 Jun-07Nov-07 Mar-03 Sep-03 Apr-04 Oct-04Mar-05 Sep-05 Mar-06 Sep-06Feb-07Jul-07Dec-07 Apr-03 Oct-03 May-04 May-03 Nov-03 Jun-04 Jun-03 Aug-03 Jul-04 Apr-05 Oct-05 Apr-06 Oct-06Mar-07 Sep-07 Aug-04 May-05 Jun-05 Aug-05 May-06 Nov-06Apr-07 Oct-07 Jun-06 Aug-06 May-07 Aug-07 *Dollar-weighted return that measures how the typical investor in Dec-03 Feb-04 Nov-04 Dec-05 the fund fared. Data asDec-04 31, Nov-05 of Dec. 2007. over time. They will spend considerable time and energy understanding the index and how best to beat it. The team attempts to add value through sector allocation and security selection. And they try to accomplish this while taking only modest credit risk. Inching Ahead, a Few Basis Points at a Time Given this low-risk approach to managing money, Stanek’s team is clearly not going to make its money in one fell swoop. “This is a game of inches,” Stanek says. “Our small size allows us to do little things.” For example, the team pays close attention to trading costs and opts for a lower turnover strategy than its peers have. It is also studying how it can better deal with cash flows in and out of the fund. Because the team doesn’t make bets on the direction of interest rates, it MorningstarAdvisor.com 63
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Morningstar Advisor - Winter 2008

Table of Contents for the Digital Edition of Morningstar Advisor - Winter 2008

Morningstar Advisor - Winter 2008
Contents
Letter from the Editor
Inbox
How Do You Use the Morningstar Style Box?
Real Estate Investing Goes Global
The Golden Touch
Investment Briefs
Learning to Fly with Equity Options
Another Block in Building a Portfolio
In a League of Their Own
Unlock the Box
Fashion Change
The View from the Investment Side
Unpredictable Style
Weighting the Fundamentals
Wire-to-Wire Consistency
The Secret's Out
Focus on Financials
Strongest Homebuilders Will Withstand the Wrecking Ball
Breaking Style Conventions
Playing It Safe with Financials
Back to Bond School
Mutual Fund Analyst Picks
Undervalued Stocks
Most Popular Variable Annuities
New at Morningstar
The Style Counsel
Morningstar Advisor - Winter 2008 - Intro
Morningstar Advisor - Winter 2008 - Morningstar Advisor - Winter 2008
Morningstar Advisor - Winter 2008 - Cover2
Morningstar Advisor - Winter 2008 - 1
Morningstar Advisor - Winter 2008 - 2
Morningstar Advisor - Winter 2008 - Contents
Morningstar Advisor - Winter 2008 - 4
Morningstar Advisor - Winter 2008 - 5
Morningstar Advisor - Winter 2008 - 6
Morningstar Advisor - Winter 2008 - Letter from the Editor
Morningstar Advisor - Winter 2008 - 8
Morningstar Advisor - Winter 2008 - Inbox
Morningstar Advisor - Winter 2008 - How Do You Use the Morningstar Style Box?
Morningstar Advisor - Winter 2008 - 11
Morningstar Advisor - Winter 2008 - Real Estate Investing Goes Global
Morningstar Advisor - Winter 2008 - 13
Morningstar Advisor - Winter 2008 - 14
Morningstar Advisor - Winter 2008 - The Golden Touch
Morningstar Advisor - Winter 2008 - 16
Morningstar Advisor - Winter 2008 - 17
Morningstar Advisor - Winter 2008 - Investment Briefs
Morningstar Advisor - Winter 2008 - 19
Morningstar Advisor - Winter 2008 - 20
Morningstar Advisor - Winter 2008 - 21
Morningstar Advisor - Winter 2008 - Learning to Fly with Equity Options
Morningstar Advisor - Winter 2008 - 23
Morningstar Advisor - Winter 2008 - 24
Morningstar Advisor - Winter 2008 - 25
Morningstar Advisor - Winter 2008 - Another Block in Building a Portfolio
Morningstar Advisor - Winter 2008 - 27
Morningstar Advisor - Winter 2008 - 28
Morningstar Advisor - Winter 2008 - 29
Morningstar Advisor - Winter 2008 - In a League of Their Own
Morningstar Advisor - Winter 2008 - 31
Morningstar Advisor - Winter 2008 - 32
Morningstar Advisor - Winter 2008 - 33
Morningstar Advisor - Winter 2008 - 34
Morningstar Advisor - Winter 2008 - 35
Morningstar Advisor - Winter 2008 - Unlock the Box
Morningstar Advisor - Winter 2008 - 37
Morningstar Advisor - Winter 2008 - 38
Morningstar Advisor - Winter 2008 - 39
Morningstar Advisor - Winter 2008 - Fashion Change
Morningstar Advisor - Winter 2008 - 41
Morningstar Advisor - Winter 2008 - 42
Morningstar Advisor - Winter 2008 - 43
Morningstar Advisor - Winter 2008 - The View from the Investment Side
Morningstar Advisor - Winter 2008 - 45
Morningstar Advisor - Winter 2008 - 46
Morningstar Advisor - Winter 2008 - 47
Morningstar Advisor - Winter 2008 - 48
Morningstar Advisor - Winter 2008 - 49
Morningstar Advisor - Winter 2008 - 50
Morningstar Advisor - Winter 2008 - 51
Morningstar Advisor - Winter 2008 - Unpredictable Style
Morningstar Advisor - Winter 2008 - 53
Morningstar Advisor - Winter 2008 - Weighting the Fundamentals
Morningstar Advisor - Winter 2008 - 55
Morningstar Advisor - Winter 2008 - 56
Morningstar Advisor - Winter 2008 - 57
Morningstar Advisor - Winter 2008 - 58
Morningstar Advisor - Winter 2008 - 59
Morningstar Advisor - Winter 2008 - 60
Morningstar Advisor - Winter 2008 - 61
Morningstar Advisor - Winter 2008 - Wire-to-Wire Consistency
Morningstar Advisor - Winter 2008 - 63
Morningstar Advisor - Winter 2008 - 64
Morningstar Advisor - Winter 2008 - 65
Morningstar Advisor - Winter 2008 - The Secret's Out
Morningstar Advisor - Winter 2008 - 67
Morningstar Advisor - Winter 2008 - 68
Morningstar Advisor - Winter 2008 - 69
Morningstar Advisor - Winter 2008 - Focus on Financials
Morningstar Advisor - Winter 2008 - 71
Morningstar Advisor - Winter 2008 - 72
Morningstar Advisor - Winter 2008 - 73
Morningstar Advisor - Winter 2008 - Strongest Homebuilders Will Withstand the Wrecking Ball
Morningstar Advisor - Winter 2008 - 75
Morningstar Advisor - Winter 2008 - Breaking Style Conventions
Morningstar Advisor - Winter 2008 - 77
Morningstar Advisor - Winter 2008 - Playing It Safe with Financials
Morningstar Advisor - Winter 2008 - 79
Morningstar Advisor - Winter 2008 - 80
Morningstar Advisor - Winter 2008 - Back to Bond School
Morningstar Advisor - Winter 2008 - 82
Morningstar Advisor - Winter 2008 - Mutual Fund Analyst Picks
Morningstar Advisor - Winter 2008 - 84
Morningstar Advisor - Winter 2008 - 85
Morningstar Advisor - Winter 2008 - 86
Morningstar Advisor - Winter 2008 - 87
Morningstar Advisor - Winter 2008 - Undervalued Stocks
Morningstar Advisor - Winter 2008 - 89
Morningstar Advisor - Winter 2008 - 90
Morningstar Advisor - Winter 2008 - 91
Morningstar Advisor - Winter 2008 - Most Popular Variable Annuities
Morningstar Advisor - Winter 2008 - 93
Morningstar Advisor - Winter 2008 - New at Morningstar
Morningstar Advisor - Winter 2008 - 95
Morningstar Advisor - Winter 2008 - The Style Counsel
Morningstar Advisor - Winter 2008 - Cover3
Morningstar Advisor - Winter 2008 - Cover4
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