Barron’s profiles the four fund managers whose funds had, as of November 30, beat the S&P 500 for one, three, five, 10, and 25 years under their management. These are Jerome Dodson of Parnassus Fund, Samuel Isaly of Eaton Vance Worldwide Health Sciences, David Carlson of Elfin Trusts, and Spiros “Sig” Segalas of Harbor Capitol Appreciation. Commonalities among their actively managed funds that made the list include:

• Each fund owns less than 65 stocks (the average for actively managed funds is 153);
• Each trades far less frequently than competitors at about 13% to 33% (average for U.S. stock funds is 65%); and
• Each fund benefited from a market that favored growth.

Barron’s observes that fewer than half of active managers beat their benchmark each year and ascribes about half of that success to chance. Thus, Dodson, Isly, Carlson, and Segalas are true standouts.

Dodson founded Parnassus Investments, the leader in sustainable investing, in 1984. While he was once an absolute-value investor, he “now looks for growth at a reasonable price.” He developed Parnassus after concluding that business and social goals can be compatible, but struggled through 1990. Dodson says that in that year, he began to learn that “you have to divorce yourself from your emotions – to go in when things look bleak, look beyond the next quarter, to really get the best returns,” summarizing, “you don’t need to be brilliant to be successful. But you do need the right temperament.” Commenting on the current state of the market, he says, “If there’s such a thing as a stockpicker’s market, this is it.”

Isaly’s OrbiMed Advisors is the world’s largest independent healthcare investor, although he also invests in private equity and venture-stage companies. His team works to “whittle a list of 750 companies to 40 core positions—25 that are profitable, 15 that are ’emerging.'” Further, “if a new company makes it into the 40-company portfolio, another must leave.” Isaly is optimistic about large biotech companies, noting that he believes the effects of the Affordable Care Act in the industry will soon moderate, and commenting, “their valuation measures are roughly the same as the S&P 500,” which “has happened like, twice, ever – and the last time was during Hillarycare in the 1990s.”

Carlson’s approach might be summarized in the following terms: “long-term view, low turnover, and to think of stocks not as pieces of paper but as ownership.” He “looks for above-average growers at attravtive valuations,” focusing on intrinsic value. He asks questions like: “what will this [company] be like in a recession, and on the other side?” He does not see the beginning of a bear market, but says “we are in a grind-it-out type of environment” and observes that “people forget that the volatility is normal.”

Segalas takes a long view, often a very long view. “For many companies he owns, he is on his third generation of managers” and “many clients have been with him for 40 years.” He looks for “long-duration assets” that can grow faster that the S&P 500 for several years. Such companies are “high quality with below-average debt.” As for the current market, he suggests that “the worst is behind us” regarding China and sees investor caution as positive. “You get in trouble when there is excitement and euphoria,” he observes, suggesting that “if profits and dividends cooperate, [the market] could have a double-digit return this year.”