Albert Nicholas, the dean of Milwaukee money managers, has a theory on why the midsize city best known for beer and bratwurst is home to so many top-performing mutual funds.
“We are not as influenced by fads and trends as people on the coasts,” said Mr. Nicholas, who has run the $1.7 billion Nicholas Fund since 1969. “We are very independent.”
Morningstar Inc. in December named funds run by two Milwaukee firms —Artisan Partners LP and Fiduciary Management Inc. — as finalists for its domestic stock manager of the year. The $580 million FMI Focus Fund (FMIOX) beat 99% of its rivals over the past 15 years. Eight more funds managed near Wisconsin's largest city, including the $10.1 billion Wells Fargo Advantage Growth Fund (SGROX) and the $2.4 billion Heartland Value Plus Fund, outgained at least 94% of their peers over the past 10 years.
By comparison, just seven mutual funds based and managed in Chicago, which has four times the population and five times as many funds, beat 94% of their peers over 10 years, Morningstar data show. Results for funds managed in Chicago for firms based elsewhere can't be tracked, the company said.
Many of Milwaukee's money managers, who collectively oversee about $57 billion in assets spread across 61 mutual funds, offer an explanation similar to Mr. Nicholas' for their success: their isolation from centers of finance. Milwaukee is 733 miles from Wall Street and 89 miles from Chicago.
"FEWER TOYS'
“I don't have any neighbors who run hedge funds,” said Andrew Stephens, whose $5.4 billion Artisan Mid-Cap Fund (ARTMX) has beaten 99% of its peers since it was launched in 1997.
“No one is constantly talking stocks to me,” he said. “I am happy here in my ignorance.”
Down-to-earth Midwesterners are less concerned about “the size of your house or boat” than their counterparts elsewhere, said Patrick English, Fiduciary Management's chief executive.
“It is easier to focus on research when there are fewer toys to manage,” he wrote in an e-mail.
Much of the city's money management community can trace its roots to Mr. Nicholas.
Known as “Ab,” Mr. Nicholas, 81, got his start at the University of Wisconsin in Madison, where he studied under Frank Graner, a dapper, chain-smoking professor of finance.
At a time when investing was usually taught as a dry academic subject, Mr. Graner was an inspiring lecturer who emphasized stock picking, Mr. Nicholas said.
Ted Kellner, who started Fidelity Management, and William Nasgovitz, founder of Heartland Advisors Inc., both in Milwaukee, also studied under Mr. Graner.
“He was the pied piper of investment studies,” Mr. Nicholas said.
In 1967, Mr. Nicholas started an investment firm with Richard Strong, another Wisconsin graduate. Seven years later, Mr. Strong created his own company, Strong Capital Management Inc., whose mutual funds were acquired in 2004 by Wells Fargo & Co.
Mr. Kellner, who replaced Mr. Strong at Nicholas Co., opened his own shop in 1980. In 1994, Carlene and Andrew Ziegler left Strong to set up Artisan Partners.
The University of Wisconsin link remains strong.
About 60 people who work for Milwaukee firms are graduates of the school's applied-security-analysis program, which trains money managers, according to its director, Brian Hellmer.
REAL-WORLD EXPERIENCE
Students in the master's degree program get real-world experience by managing $53 million that comes from the university's endowment and alumni donations, he said.
Thomas Ognar, manager of the Wells Fargo Advantage Growth Fund, and Adam Peck, co-manager of the $2.4 billion Heartland Value Plus Fund (HRVIX), both are graduates of the program. Mr. Ognar's fund beat 99% of its rivals over the past 10 years and Mr. Peck's beat 97%, Morningstar data show.
With a population of 595,000, Milwaukee is America's 28th-largest city, according to the 2010 census.
In the mid-1960s, four Milwaukee brewers — Blatz, Pabst, Schlitz and Miller — were among the top 10 beer makers in the world, according to the Museum of Beer and Brewing. Miller, which is owned by giant British brewer SABMiller PLC (SAB), is the only one still operating a brewery in Milwaukee.
Harley-Davidson Inc., the biggest U.S. motorcycle maker, and Johnson Controls Inc., the largest U.S. auto supplier, are based in Milwaukee.
Most of the mutual fund companies are clustered along the shore of Lake Michigan in the city's downtown, which features wide streets and little traffic. Money managers boast of their short commutes and affordable homes.
“Professionals can live like kings here, compared to Boston and New York,” Mr. English wrote in an e-mail.
A median-priced single-family house in the Milwaukee metropolitan area cost $181,000 in the fourth quarter of last year, compared with $325,000 in Boston and $363,000 in New York, according to the National Association of Realtors.
The climate may not be as big a draw. The average January temperature is 21 F, compared with 32 in New York.
The Milwaukee firms that run equity funds emphasize individual stock selection and their own research over seeking to ride macroeconomic trends.
“It is too risky to make big macro bets,” Mr. Ognar said in an October interview.
In that interview, he described Apple Inc. (AAPL), his largest holding, as a cheap stock, even though it had recently hit a record price of more than $422 a share. Apple closed March 2 at $545.18.
Fiduciary Management, which manages $12.5 billion, Artisan and Heartland all stress their bottom-up approach.
"READ 10-Ks'
Eric Colson, Artisan's chief executive, described his money managers as people “who like to sit in the corner and read 10-Ks.”
Artisan, which has $65 billion in assets, including funds managed by teams in other cities, as well as money in separate accounts, withdrew a planned initial public offering in December, citing market conditions. One of the company's value investing teams, based in Atlanta, won Morningstar's award for domestic stock manager of the year in 2011.
Mr. Nasgovitz calls himself a disciple of Benjamin Graham, the legendary investor who was Warren E. Buffett's professor at Columbia University. Like Mr. Graham, Mr. Nasgovitz looks for companies with little debt, selling at a discount to their long-term value.
Heartland Value Plus attracted $770 million last year, according to Morningstar, bucking a trend that saw investors pull $135 billion last year from funds that buy U.S. stocks, according to data from the Investment Company Institute.
The $5.1 billion FMI Large Cap Fund (FMIHX), whose managers also were nominated for Morningstar's top award last year, gained $791 million. Mr. Ognar's Wells Fargo fund attracted $4.5 billion, which ranked it among the 20 most popular U.S. mutual funds, Morningstar data show.
On the bond side, Lyle Fitterer's $2.7 billion Wells Fargo Advantage Municipal Bond Fund (SXFIX) beat 99% of its rivals over the past 10 years, Morningstar data show.
After the muni market sold off in December 2010 following analyst Meredith Whitney's prediction that there would be “hundreds of billions” of dollars of defaults, Mr. Fitterer said that her forecast was off the mark.
DON'T ALWAYS HAVE "SIZZLE'
“I am not saying there won't be defaults,” Mr. Fitterer said in January. “But I have a hard time getting to $10 billion, let alone $50 or $100 billion.”
Mr. Fitterer's fund gained 10% last year as defaults totaled $2.6 billion, excluding tax-exempt debt in AMR Corp.'s bankruptcy, according to Matt Fabian, a managing director at Municipal Market Advisors.
The $754.7 million BMO Intermediate Tax-Free Fund (MITFX) beat 99% of competitors in the past five years, Morningstar data show. In December 2010, Bank of Montreal agreed to buy Milwaukee-based Marshall & Ilsley Corp., the fund's owner, for about $4.1 billion in stock.
The $1.4 billion Baird Core Plus Bond Fund (BCOIX), managed by Mary Ellen Stanek, beat 94% of rivals over 10 years.
In 2008, her $1.2 billion Baird Intermediate Municipal Bond Fund (BMBIX) beat 99% of similar funds by sticking to higher-quality issues, she said.
“We are hard-working Midwesterners here,” said Ms. Stanek, president of Baird Funds Inc. “We may not always have the latest sizzle, but that sizzle often doesn't add value.”
