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"What to do when your fund manager quits"

David_Snowball
edited August 2012 in Fund Discussions
Dear friends,

I fielded a call from an editor at U.S. News while I was on vacation. We had a long talk about recent manager resignations and whether that should trigger a "sell". The resulting article is here: http://money.usnews.com/money/personal-finance/mutual-funds/articles/2012/08/06/what-to-do-when-your-fund-manager-quits . Here's the short version of my grouchy outburst: most fund companies are driven by the need to gather and hold assets, primarily in retirement accounts. They don't want flash, they don't want big bets, they don't want to stand out from the herd and they certainly don't want to be in the headlines. They discovered that large, plodding, mediocre funds are about the best vehicle for doing that. For those funds, the managers are largely interchangeable drones. (The article singles out Oppenheimer and Putnam but I harshed on Fidelity for a while.)

There are funds, often small and from boutiques, where performance matters and where the manager matters. In those cases, a manager change is a cause for re-evaluation but in a lumbering behemoth, not so much. The advice "if you've got a plodder and can do so, switch to Vanguard" didn't survive.

For what it's worth,

David

Comments

  • catch22catch22
    edited August 2012
    Thank you, David.

    The original link wouldn't process; but this one should be okay.

    U.S. News

    Regards,
    Catch
  • David_Snowball
    Reply to @catch22: Nuts. I let a period slip into the URL. Thanks for the ... uh, catch, catch!
  • BobCBobC
    This was a good article, David. What you suggest about large domestic stock funds and large diversified international funds is often very true. Unfortunately those few large funds that really have done well with their current manager can be problematic when the manager retires or moves on to another company (or starts her/his own hedge fund). When that occurs, investors need to take stock of who the new manager is. If it is someone who has been on the management team of the fund for a while, that may signal a 'wait and see' response. If it is a new person, for whom there is little or no information available, or if the new person has no experience in the kind of strategy the previous manager used, that is usually a sell signal.

    For example, when First Eagle Overseas' Jean-Marie Eveillard first retired in 2004, his successor was part of the team. It seemed logical to hang on. But when that person left in a huff two years later, Eveillard was brought back - smart move by fund company owners - while younger persons were groomed for management. That prooved to be a good thing, since current managers have not missed a beat. Investors who stayed have been rewarded by consistent investment strategies.

    We have had instances when we have learned of a manager's leaving, but then we were unable to talk with anyone on the management team. That's a real sell signal for us. When no one will return our calls, that is not a good sign at all.

    And you are spot on about smaller firms and funds. Individual management leadership is very important in these instances. Sometimes these folks ARE the fund.

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