This is how long the current manager or co-managers have been running the mutual fund.
Mutual fund manager tenure matters because they have the ability to change strategy.
If they take a new strategy it can impact what is owned by the fund. Thus impacting if is a good investment for you.
So what exactly should you be looking at when evaluating the fund manager and his/her tenure?
Before we tackle that let’s look at what the fund manager does.
What Does the Fund Manager Do
A fund manager’s job is to decide what investments to make with the mutual fund’s money.
They do this by reviewing the companies financials, meeting with manager and comparing the company to other companies.
A fund manager will also decide when to sell an investment. Plus what strategy the fund should take to achieve its objective.
What to Look For in Fund Manager Tenure
Now that you understand the role a manager plays, let’s look further at how to review a manager.
I like to see the management team in place for at least two years. Five years or longer is even better.
There are two major things that will be impacted by the manager: strategy and historical data.
If the manager is new then the historical data will better represent the old managers investment decisions. You won’t get an idea of how they can preform.
One example would be a metric such as trailing return, a new managers decisions won’t be in this metric as much as the old managers.
When it comes to strategy this is a bit more complicated to watch. While the prospectus states the funds goals and objectives, different managers may have different opinions on how to achieve this. A new manager can alter the fund’s investment strategy.
Sometimes a fund company will have a defined investing strategy that they have their managers fit into. Some allow the managers the flexibility to decide how to determine what to invest in. Unless you know what the particular fund company does it is best to take closer look at the most current results with a new manager.
For newer managers, I will look at the returns of the fund both since the new management and before new management. What I am looking for is how the fund performed over their respective management terms. So I can attempt to determine how the new manager is doing versus how the old manager did.
For example, I recently was looking at a fund that had historically done well, but seemed to be struggling a bit. Upon further review, the manager was new within four years. The returns had been struggling since this turnover point. For this reason, I eliminated it from my fund search.
How to See a Change of Strategy/Direction
At Morningstar, look at the portfolio page and look at the Investment Style History. This will show you if strategy has been changing over the past few years. You may find that a new manager has begun picking more large companies versus medium companies (market cap). This is helpful to determine if the fund is still in the same category and heading the direction that you want to go.
Knowing More About The Tenure and History of All Managers
It may help for you to see the history of managers at the fund to get a better perspective.
Look at the list of managers on the management page of Morningstar, or in the prospectus from the funds website.
(At morningstar, look up your fund ticker symbol and then click on the management tab.)
Often this will tell you how long each manager has been on the fund. You may find that there is a new manager, but that he had been co-manager for seven years before he took over.
Sometimes Morningstar will also have the manager history for previous managers so you can see what the turnover pace have been with the fund. This way you know if you need to worry about continual strategy change.
For example, one of the funds that I own has three managers; two have been there since the fund started and one has been there 12 years. To me if one or two of them left and new managers were added, I would not be as concerned about the change as I would if all three had left. However, it is still a change and I would still look at the recent return numbers to verify.
Don’t use manager tenure as the only measure of how a fund might do in the future. Even if the manager has been there for 30 years it does not guarantee that he will make money. It is only another tool to use to pick a winner.
If the Manager is the Same
If you learn that the manager has been around for longer than two years, there is not a ton to look at.
I do however look at the following:
- Is it team management or single manager. This is important because if it is only one manager then there is more risk if he/she leaves. If it is a team, the departure of one is not as risky.
- If it is a single manager does he/she have a large analyst team behind him/her. Most mutual fund companies have a manager and then analysts that work with them. If the analyst team is big and experienced, then a manager change may not be as big of an impact.
- Is the manager getting close to retirement. This could indicate a possible change in management soon.
Remember there is no guarantee that any fund will make money. This is why you look at as many factors as you can to try and pick the best mutual fund. Fund manager tenure is just one factor in your final decision.