If you invest in actively managed funds, the departure of a manager should concern you.
If it doesn’t, that tells you something about the fund, good or bad.
For the latest proof of this, one need look no further than two fund shops that have seen some significant manager moves recently.
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At least some of those changes appear unplanned, meaning the manager left the fund company to fill the void, and shareholders to wonder what’s next.
It would be easy but wrong to apply some rule of thumb to manager changes, as in “dump the fund when the manager leaves,” but even the most ardent supporters of the “buy the manager, not-the-fund” school of thought believe instant change is a bad idea
To see why, consider recent manager changes at T. Rowe Price and Janus; while managers change jobs virtually every day, these stories give a good grounding in different ways to view managerial change.
In early May, Joe Milano left T. Rowe Price New America Growth (PRWAX) after having built up a terrific 10-year record; Milano was known as a bit of a lone wolf, doing a lot of his own research to build a portfolio that seemed to follow the idea that a good defense is the best offense.
T. Rowe is prepared for managers to leave, considering that each fund is backed up by an investment advisory committee, and the company is known for easing in co-managers for months or years to ease the burden of transition when a manager is nearing retirement age or considered likely to leave.
But Dan Martino — the new boss at New America Growth — comes to the job from a sector fund, T. Rowe Price Media & Telecommunications (PRMTX), where he was known for playing more offense, albeit with a strategy that works in concert with T. Rowe’s analytical staff.
The result is that investors should have good reason to believe that Martino can run a diversified fund and not miss a beat, but that the fund will be changed, especially in how it rides with the market or fights the tides.
Morningstar dropped its analyst rating on New America Growth from gold to neutral until Martino can prove his acumen.
Investors in this kind of situation should act, effectively, the way the ratings firm has, sticking with the fund while waiting to see if the new manager can live up to the old one.
Meanwhile, three managers at Janus are leaving the firm, and the situation there is not quite as clear, especially because two of them may represent the firm’s best stock pickers.
Brian Schaub and Chad Meade left Janus Triton (JATTX) and Janus Venture (JAVTX) with the top records at the firm over the last three and five years; their funds were among the few at the firm with net inflows.
Janus was a go-go fund company in the pre-Internet bubble days, but its funds got hammered when the market crashed in 2000, and it has run through a wide range of stock pickers since, a bit as if it was flailing around trying to find something that works.
Jonathan Coleman, the company’s former co-chief investment officer who had been running the Janus Fund (JDGAX) takes over at Triton and Venture; Coleman’s record at the Janus fund was uninspiring, but he did well before that at Janus Enterprise (JAENX), a fund with a portfolio and investment objective more similar to the issues he’s taking over.
Janus also is losing veteran Ron Sachs, who was once a star at the firm during his time with Janus Orion (JORNX), now called Janus Global Select, but who had struggled for the last five years at Janus Twenty (JAVLX) and Janus Forty (JACTX).
Those funds will now have separate managers, which should make the portfolios different, so shareholders should expect change.
While almost any change would be positive — Twenty and Forty are two of the firm’s five worst funds and rank in the bottom 10 percent of their Morningstar peer group — investors have less reason to stick around
“You have to take a look at the manager, the track record, what they’re buying today — is it the same thing they were buying six months and six years ago — and are they consistent in what they do,” said Dan Wiener, editor of the Independent Adviser for Vanguard Investors.
Ultimately, if a manager change gives you pause, that’s appropriate; you want to see that the fund continues to deliver the kind of leadership, management style and results you’re paying for.
But if a manager change makes you feel that the fund is hopeless or that top brass can’t find the right path, then instead of putting the fund on a “watch list” it might be time to say goodbye.
If you’re not getting what you expect from an active manager, you’d be better off in a situation where you “buy the fund, not the manager” and go with a low-cost index offering.
Chuck Jaffe is senior columnist for MarketWatch. He can be reached at firstname.lastname@example.org or at P.O. Box 70, Cohasset, MA 02025-0070.
Copyright, 2013, MarketWatch