Volatile markets nurture new mutual fund stars

By Jason Szep

BOSTON (Reuters) - The stars in the mutual fund firmament are realigning. As investors sift through the wreckage of their portfolios in an industry beset by steep losses, new luminaries among fund managers are emerging.

And the definition of success has changed. A manager who keeps returns above water may now be a star.

As value stock picker Bill Miller of Legg Mason and other long-time heavyweights in the $11 trillion (7 trillion pound) U.S. mutual fund industry eke out returns that fail to beat inflation over a 10-year period, a handful of managers are jockeying for star status -- and the business that comes with it.

"Clearly, we will see some new players," said Geoff Bobroff, head of a fund consulting firm in East Greenwich, Rhode Island.

Managers who could emerge relatively unscathed include Dan Fuss, a 50-year veteran fund manager at Loomis Sayles in Boston who oversees bond funds across the fixed-income spectrum, Bobroff reckons. The flagship Loomis Sayles Bond Fund, however, is struggling with a 14 percent loss this year.

Bobroff also points to Bill Gross, the co-chief investment officer of Allianz SE's (ALVG.DE) Pacific Investment Management Co. The bond-fund king's $130 billion Total Return Fund PTTRX.O, the world's largest bond mutual fund, is above water with a 0.5 percent rise since January 1.

Over the past 12 months, the fund has added 3.77 percent to outperform the 3.65 percent increase of benchmark Lehman Brothers U.S. Aggregate Index, according to data from the company's website.

The troubled credit markets have only added to the 64-year-old Gross' reputation. Known for bold calls on the economy, Gross warned investors in July 2007 of a huge toll from the subprime-mortgage mess.