Course 502: Fund Warning Signs
Manager Changes
In this course
1 Introduction
2 Asset Growth
3 Manager Changes
4 Fund-Family Growth, Mergers, or Acquisitions
5 Keeping Watch

Most mutual funds are only as good as the people behind them: the fund managers. Managers decide what to buy, what to sell, and when to make these changes. Because the fund manager is the person who is most responsible for a fund's performance, many investors wonder if they should sell a fund when their manager leaves.

Unfortunately, there is no one right answer to this question. You'll need to consider a few factors. For example, you may have to pay taxes on your sold shares, if they've appreciated since you bought them. And what you give up in taxes may not be offset by future gains in a different fund. You'll also need to consider the record of the new manager-perhaps he or she has already worked on the fund? Perhaps the manager has racked up a solid record at another offering? Keep in mind: A new manager may do just as well as the old.

Further, management turnover won't make much difference when it comes to certain kinds of investing styles. Consider index funds. Managers of index funds are not actively choosing stocks, they're simply mimicking a benchmark. Thus, manager changes at index funds are less important than manager changes at actively managed funds.

Sometimes, it's clear that management turnover is a non-issue. Some fund shops have deep benches, strong analyst training programs, and extensive research support. These firms have historically had plenty of talented managers and analysts who can take over when a manager departs. Similarly, funds run by teams are often less affected by manager changes. If one team member leaves, there are often two or three other managers who will remain behind.

Of course, changes in management can be a crushing blow to funds run by a single fund manager who has proved to be an adept stock-picker or trader in markets in which there are a wide range of possible returns (such as small growth or emerging markets). Manager changes at good funds from families that aren't strong overall are bad news, too.

Next: Fund-Family Growth, Mergers, or Acquisitions >>


Search
Print Lesson |Feedback
Del.icio.us Del.icio.us | Digg! digg it
Learn how to invest like a pro with Morningstar’s Investment Workbooks (John Wiley & Sons, 2004, 2005), available at online bookstores.
Copyright 2015 Morningstar, Inc. All rights reserved. Please read our Privacy Policy.
If you have questions or comments please contact Morningstar.