Morningstar has released their picks for Best Mutual Fund Managers of 2009. It’s important to remember that the competition is intended as an acknowledgement of past achievements, not as a recommendation for future performance..

That being said, the rankings are determined by a number of factors, not just best return for the calendar year. And the results are given in three categories: Domestic equities, international equities, and fixed income.

Here are the winners.

Domestic Equity

Bruce Berkowitz of Fairholme Fund (FAIRX)
2009 Return/Percentile Rank: 39.0/9th

The Fairholme fund returned 39% (12.5% better than the S&P 500) despite not holding any technology stocks and keeping 17% in cash!

Much of what made this fund perform so well is what the Mr. Berkowitz did in 2008 and 2007.

International Equity

The Team at American Funds EuroPacific Growth (AEPGX)
(Stephen Bepler, Mark Denning, Robert W. Lovelace, Carl Kawaja, Sung Lee, Nicholas Grace, Jonathan Knowles, and Jesper Lyckeus)
2009 Return/Percentile Rank: 39.1%/15th

This fund did so well because the management team was in the right place at the right time – developing markets (i.e. emerging markets!), which went on a tear in 2009. The also reduced their cash stake to 5% in time to catch the market bottom and ensuing rebound. Nice work.

Fixed-Income

The Team at Loomis Sayles Bond (LSBRX)
(Dan Fuss, Kathleen Gaffney, Matthew Eagan, Elaine Stokes)
2009 Return/Percentile Rank: 36.8%/14th

This team owes its success to a contrarian approach and the discipline to stick to that approach when times got really tough. The team went bargain hunting in corporate bonds just before the bottom fell out in 2008, and panic ensued.

They kept to their plan, convinced that the panic was overblown, and it paid off… to the tune of a 36.8% gain. Not too shabby for a fixed income fund!

Be sure to read the full article from Morningstar to get all the details on these terrific managers, as well as the process for picking them.

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These are peculiar times we find ourselves in. Here’s a list of funds from Kiplinger that not only cover just about every bogeyman bandied about in the financial press these days, but hit upon some classic needs in a mutual fund as well.

Inflation protection

Sooner or later, the reckless monetary policy in Washington D.C. is going to catch up with us, and it will likely result in much higher inflation than we’ve seen in recent times. To combat that threat to your wealth, you may want to look into Fidelity Strategic Real Return (FSRRX). This fund holds a mix of 30% inflation indexed government bonds, 25% commodities, 20% real estate, and 25% floating rate loans. Diversification should provide for a smoother ride, and each asset type benefits from rising prices.

Net Asset Value (NAV):8.40
Yield: 2.58%
YTD Return: 22.12%
5y Avg Return: N/A
Rank in Category (ytd): 122
% Rank in Category (ytd): 18.86%
Beta (3y): 0.88
Morningstar Risk Rating: Above average

Benefit from a recovery

Eventually, the economy is bound to recover, and when it does you’ll want to be in the T. Rowe Price Mid-Cap Growth (RPMGX), or so the staff at Kiplinger say. The manager of this fund focuses on fast growing companies, with high returns on investment capital. Small and mid-cap stocks typically lead out of a recession anyway, so this seems like a good choice for a recovery fund. It’s a bit expensive however, with an NAV of 46.06.

NAV:46.06
yield: N/A
YTD Return: 38.69%
5y Avg Return: 6.27%
Rank in Category (ytd): 204
% Rank in Category (ytd): 23.94%
Beta (3y): 1.11
Morningstar Risk Rating: Average

Benefit from the falling dollar.

The Merk Hard Currency Inv (MERKX) fund seeks to profit form a declining dollar by investing in gold and money market securities, denominated in foreign currencies. The fund does not appear to have a Morningstar rating, and the ratio of investments in currency to gold is not readily apparent, so be sure to read the prospectus on this one carefully before you invest.

NAV:12.41
yield: N/A
YTD Return: 12.69%
5y Avg Return: N/A
Rank in Category (ytd): 0
% Rank in Category (ytd): 0%
Beta (3y): -0.70
Morningstar Risk Rating: None.

Best new fund.

Kiplinger’s pick for best new fund is the Third Avenue Focused Credit Investor (TFCVX) fund. Their reason seems to be that the fund sponsor, Third Avenue, seldom launches new funds so it must be good! I’m not sure that’s enough for me to invest in a fund, but it does seem interesting enough to examine further.

Third Avenue Focused Credit Investor focuses on junk debt, specifically convertible bonds and distressed securities. Need I say that these are risky investments? Still, much of the risk may be wrung out of them since the toxic asset debacle of 2008. You’ll have to do your own gut check on this one, as well as your own research because there isn’t a lot of information or history out there for this fund yet.

Low minimum required investment.

Most mutual funds require minimum investment amounts that put the fund out of reach for the small investor, especially one just starting out. But some funds pride themselves on keeping a low minimum. Kiplinger rates their best low minimum fund pick for 2009 to be the same as last year: Amana Trust Growth (AMAGX) fund. The minimum investment is $250, and the fund focuses on large cap growth companies. While the managers choose their investments using Muslim principles as a guide, the fund is open to all investors.

It’s interesting to not that Morningstar gives this fund a below average rating. Keep in mind that the average here is among all large cap growth funds, not just low minimum funds.

NAV: 20.66
yield: N/A
YTD Return: 22.28%
5y Avg Return: 8.93%
Rank in Category (ytd): 1280
% Rank in Category (ytd): 70.95%
Beta (3y): 0.75
Morningstar Risk Rating: Below average

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Kiplinger has released their annual “best of” edition, where they rate the best of just about everything. One of the categories is ETF’s. I thought I’d share the picks, and some thoughts on them here, but you should check out the complete issue if you get a chance.

Best ETF for Income.

Kiplinger’s pick for best Income ETF is the iShares iBoxx $ Invest Grade Corp Bond (LQD) ETF. It not only has a decent yield, but a pretty good return so far for the year, especially for a bond ETF – 11.65%.

LQD generally seeks to match the price and yield performance of the iBoxx $ Liquid Investment Grade Index. LQD invests 90% or more of assets in the bonds of the underlying index, with at least 95% in investment grade corporate bonds. The remaining 5% of assets can be in U.S. government obligations, and in cash and cash equivalents. It is a non diversified fund, meaning there is no stock component, only bonds. That’s something to consider if diversification is important in the income portion of your portfolio.

Not only has this fund outpaced most other corporate bond ETF’s, it also pays a monthly dividend.

YTD Return: 11.65%
Yield : 5.38%
Total Expense Ratio 0.15%

Best ETF for Those Seeking a High Return.

Kiplinger’s first of two Vanguard funds recommended in this article is the Vanguard Emerging Markets Stock ETF (VWO). It’s no wonder either, with an expense ratio of only 0.20%, and a total return year to date of a whopping 62.82%!

Vanguard’s Emerging Markets Stock ETF tracks the performance of the MSCI Emerging Markets index. It’s a passively managed fund which invests all or nearly all of its assets in a representative sample of the common stocks included in the MSCI Emerging Markets index.

YTD Return: 62.82%
Yield: 3.11%
Total Expense Ratio 0.2%

Small companies.

The second Vanguard fund recommended is the Vanguard Small Cap ETF (VB).

The VB ETF tracks a benchmark MSCI US Small Cap 1750 index. It invests all or nearly all of its assets in stocks that make up that index. Like all Vanguard ETF’s, the VB has a low expense ratio (0.1%), but a high (for small cap stocks) yield of 1.76% – and it’s had a pretty good run this year.

YTD Return: 30.92%
Yield: 1.76%
Total Expense Ratio 0.1%

Complete portfolio.

The iShares S&P Growth Allocation (AOR) ETF is like a one stop shop for your somewhat generic allocation with moderate risk portfolio. It invests 60-70% in stocks, and 30-40% in fixed income securities like bonds and REITs.

It’s a great out of the box portfolio for the investor who isn’t sure what he should be investing in and what kind of allocation it should be.

YTD Return: 15.70%
Yield: N/A
Total Expense Ratio 0.11%

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