William Samuel Rocco is a senior mutual fund analyst with Morningstar. He would like to hear from you, but he cannot provide individual-portfolio or financial-planning advice.
Initial assessments are only the starting point, though. New managers often prove to possess considerably more or less skill than their resumes suggest. And their plans to keep their predecessors' strategies largely or completely intact sometimes evolve into moderate or even major restructurings of the approach over time. Therefore, it's crucial to monitor both the performance and the portfolio moves of new skippers for at least a few years after they take the helm.
With that in mind, we're going to assess the early efforts of the new managers at three well-known large-cap funds: American Century Ultra
, Oppenheimer Main Street
, and Lord Abbett Affiliated
. (We recently did the same
with the new skippers of three notable international-stock.)American Century Ultra
This large-growth fund's April 2009 manager change was a promising one. The new lead managers, Keith Lee and Michael Li, were American Century veterans who were already serving as comanagers on this fund. Lee and Li had a couple of years of experience as lead managers on another large-growth offering at the firm, American Century Select
, where they delivered relatively attractive results during their time in charge.
Lee and Li use the same basic strategy on both funds. They use a combination of quantitative screens and fundamental analysis to locate quality growers with robust earnings, price momentum, and other strengths; they avoid big sector and industry bets; and they move at a moderate pace. But in the case of American Century Ultra, they're more willing to own really fast-growing firms with high price tags.
As the U.S. market has gyrated since the spring of 2009, Lee and Li have put the somewhat bolder approach to good use: The fund's 17.5% annualized return was roughly 2 percentage points better than the large-growth average. They have also posted solid results at American Century Select over the past two years, and that fund has an impressive record over their full tenure as lead managers. This fund will likely struggle at times, but it has bright long-term prospects.Oppenheimer Main Street
There were several reasons for optimism when Mani Govil took the helm of this front-load large-blend offering in May 2009. For starters, Govil already had 14 years of core-equity portfolio-management experience under his belt. He had delivered impressive returns as the skipper of RS Large Cap Alpha from mid-2005 through early 2009. And the 11-person team that assisted him on that fund moved to Oppenheimer with him.
Govil was also bringing the strategy he used to earn superior returns at his former charge along. That strategy is both sound and distinctive. Govil pursues three types of issues: firms with sustainable competitive advantages over their rivals; companies that are in unexceptional businesses but that execute very well; and promising turnaround plays. He also sets his standards high. The result is a high-quality portfolio of 50-100 names that stands out from the large-blend crowd.
But Govil has delivered uneven results with this approach so far. He led this fund to a top-quartile gain in 2010's rally as many of his consumer-cyclical and other picks thrived, but he has produced a bottom-third loss during this year's sell-off as several of his financial and other holdings have struggled. This year's performance is a reminder that the distinctive aspects of his approach come with real risks, and this fund has lagged the average large-blend offering since he took over. However, his 27-month tenure isn't all that long yet, and his past success and the many merits of his strategy still provide grounds to be hopeful about the long run here.Lord Abbett Affiliated
This front-load large-value fund's July 2009 manager change came with real promise. Incoming manager Dan Frascarelli had already successfully run Lord Abbett Classic Stock
for four years, worked at Lord Abbett for two decades, and served in the investment field for 26 years. He has the benefit of working with a sizable and seasoned team of industry experts.
Meanwhile, Frascarelli intended to make some sensible adjustments to this fund's strategy. He would maintain the emphasis on companies that are cheap relative to their normalized earnings and possess a catalyst for growth, and he would continue to use company-specific and macroeconomic analysis to evaluate individual industries and sectors. However, he wouldn't allow the fund's sector and industry weights to differ from those of the Russell 1000 Value Index as much as his predecessor did.
Frascarelli has followed through on his plan and reined in this fund's industry and sector overweights. But he certainly hasn't made the portfolio tame. He has continued to make more-moderate top-down calls, including his 2011 bet on a gradually improving economy, which has led him to favor more-cyclical areas like financial and basic-materials stocks. Those biases, and some poor stock picks, have led to terrible results in this year's tough climate, and this fund has posted disappointing results overall during Frascarelli's tenure as a result. But his approach remains sound, and Lord Abbett Classic Stock, where he uses a similar tack, has earned attractive risk-adjusted returns during his six-year tenure despite struggling in 2011, as well. Thus, this fund still has ample potential.