Your Fund's Approach To Mutual Fund Management Can Impact Performance And Consistency.
Fund Manager turnover or any sudden change in Mutual Fund Management is cause for real concern.
In fact... a fund company's management structure can impact performance, consistency, and risk probably more than most investors realize.
A fund manager's job is to take the influx of shareholder's money and then decide what stocks, bonds, or other securities to purchase in order to fulfill the fund's objective.
As with all things in life, some mutual fund managers do a better job than others.
What normally happens, when a fund manager develops a great track record and is recognized by the industry, is that the fund that he manages will see a great inflow of new shareholders.
It is normal for people to want to be with a winner.
However, at the same time, his fame and notoriety makes him attractive to other mutual fund companies. It is not unusual, then, for this manager to be hired away and move to a different company.
The question then becomes...
What happens to your fund's performance when the superstar leaves?
Studies have indicated that if the fund's performance was good, then the new manager's performance was unlikely to be as good.
The new guy will intend to make his mark. He will change things and those changes will impact you.
Manager turnover will typically increase risk and often hurts the performance of a mutual fund.
If your fund's manager has been hired away by another fund company, then you should most certainly reconsider your position in the fund.
Find out why he left and evaluate what you should be able to expect going forward.
When funds experience a change in management, risk increases. In addition, those funds often also experience style shift and creep.
So, what are you to do?
The answer is to look for mutual funds that use the "team approach" to fund management.
Team management means that a lead manager divides the fund in some manner among several co-managers.
Depending on the company, each co-manager is then either solely responsible for his or her portion of the fund or each co-manager must win the consensus of the group before buying and selling any security.
This approach to fund management helps to reduce or avoid the problems normally associated with manager turnover.
Team managed mutual funds tend to have greater consistency than funds run by just one person. If one co-manager leaves, the others provide continuity.
So, in summary, you should look to invest with mutual fund companies that team manage their funds. Look for companies that have done so for a number of years. And finally, look at each manager on the team to determine his level and depth of experience.
"Because It Matters"... Jim
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