investing

What to do when a fund manager leaves

"But since then, the fund's performance has been awful," notes Morningstar analyst Bridget B. Hughes in a report. She has had a negative rating on the fund since November 2011.

Indeed, investors joining the fund in early 2007 based on that record would have suffered a 6.7 percent loss that year, followed by a whopping 55 percent decline in 2008. Further indicating that past performance isn't a reliable guide, the fund was up almost 41 percent in 2009, up nearly 7 percent in 2010, and down 4 percent in 2011. Miller recently retired as sole portfolio manager.

Other funds are team-managed or are managed with more of a quantitative process or some other defined process. So losing one member of the team is not as great a cause for concern, says Iachini.

Harbor International Fund lost its star manager, Hakan Castegren, who died in 2010. He is credited for being the fund's sole manager between 1987 and early 2009, when four co-portfolio managers joined him to run the fund using a team approach. But fund literature indicates that the four managers served in a supporting role for many years before the official change.

"The process didn't change that much; the transition was more subtle," says Kinnel."The people who replaced Castegren are very experienced. It represents why you don't automatically sell a fund because of a manager change."

Gradual fund manager changes

One way to implement a change in portfolio management is to do so over time. A planned transition allows for less disruption and better training of the managers who will ultimately run the fund.

A case in point: Thornburg International Value fund, founded by Bill Fries. "Despite William Fries' relinquishing portfolio management responsibility for the majority of his fund's assets to Wendy Trevisani and Lei Wang, we told our clients to hang onto the fund," said Aaron Skloff, CEO of Skloff Financial Group in Berkeley Heights, N.J.

They were rewarded as Trevisani and Wang, who were promoted from associate portfolio managers to portfolio managers in 2006, have continued his legacy of strong performance. Meanwhile, Fries (now in his 70s) manages a minority of the assets.

But some financial experts believe a new manager isn't going to stray far from the benchmark it's trying to beat. So basing a decision on the manager isn't as important as basing it on the strategy of the fund.

"Most new managers are looking to add a little bit of 'alpha,' or outperformance, above their benchmark," observes Randy Warren, chief investment officer of Warren Financial Service, a registered investment advisory firm in Exton, Pa. "The new manager isn't going to stray very far from his benchmark, so picking a fund that has the right benchmark can have a bigger impact on your return than picking the right manager."

advertisement

          Connect with us
advertisement
CD & INVESTING NEWSLETTER

Learn the latest trends that will help grow your portfolio, plus tips on investing strategies. Delivered weekly.

CDs and Investment

Start retirement savings at 24?

Dear Dr. Don, At age 24, I recently started a job working for a corporation. I'm interested in individual retirement accounts. I'd like to look at investing in stocks and bonds and learn more about choosing a 401(k) plan.... Read more

advertisement

Blog

Sheyna Steiner

Death of active funds greatly exaggerated

Actively managed funds have lost assets to index funds over the past five years. But the trend hasn't been consistent across asset classes.  ... Read more

Partner Center
advertisement

Connect with us