Morningstar picks top fund managers of 2006

Investment research firm Morningstar Inc. on Wednesday picked its 2006 “managers of the year” in mutual funds, and gave a nod in the fixed-income category to Jeffrey Gundlach of Los Angeles-based TCW Group Inc.

Gundlach, who oversees the $540-million TCW Total Return Bond fund, has produced returns “that far outpace his typical intermediate-term bond peer while taking on less interest-rate risk and enduring less volatility than the category’s typical offering,” Chicago-based Morningstar said.

The fund invests almost exclusively in high-quality mortgage-backed securities. The fund’s total return was 5.3% in 2006 on its institutional-class shares. That topped the 4% average return of intermediate-term bond funds, according to Morningstar.

The research firm chose Mason Hawkins and Staley Cates, who oversee the Longleaf Partners and Longleaf Partners Small Cap funds, as top U.S. stock fund managers of the year.

David Herro, who manages the Oakmark International and Oakmark International Small Cap funds, was named international-stock manager of 2006.

Morningstar said the winners “not only had a great year in 2006 but had also served their shareholders extremely well over long time periods.”

Gundlach’s mutual fund is a small piece of the $60 billion he manages at TCW as the firm’s chief investment officer. He is considered one of the leading experts on mortgage-backed securities, a complex corner of the bond market.

In an interview Wednesday, Gundlach said he was sticking with his forecast for a weak U.S. economy in 2007. He advises investors to be wary of lower-quality, higher-risk bonds and stocks, including bonds backed by so-called sub-prime mortgages.

Tom Petruno