Less than half of U.S. mutual funds are owned by their managers, according to Morningstar. That's a problem, contends the firm, since a...

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Less than half of U.S. mutual funds are owned by their managers, according to Morningstar. That’s a problem, contends the firm, since a fund manager who puts his or her money at risk alongside his investors is showing conviction in his strategy, says Russ Kinnel, Morningstar’s director of fund research.

“There is a slew of funds out there where the managers clearly just think of them as products,” Kinnel says.

Mark Coffelt, manager for Empiric Core Equity (EMCAX), has more than $1 million invested in his charge. “I find the best-managed funds tend to have heavy ownership. If they don’t have skin in the game, why should I play?” he says.

There may be good reasons for a lack of insider ownership, such as legal restrictions, in the case of international fund managers who live overseas, says Stacey Johnson, Franklin Templeton spokeswoman.

T. Rowe Price’s three municipal-fund managers are not invested in their state-focused funds because they don’t live in the states and can’t benefit from the tax breaks, notes Brian Lewbart, spokesman.

Managers of specialty or bond offerings might not invest in their funds because it may be inappropriate to their age or diversification needs, says Kinnel. But they should still invest at least a small amount, he says.

Managers at both T. Rowe and Franklin Templeton are typically invested substantially in at least one of their own funds or other company funds, representatives say. Almost all 50 of the largest mutual funds have at least some insider ownership.

Still, some stakes might be considered low given that managers of the biggest funds likely make more than $5 million a year, notes Kinnel.

Under Securities and Exchange Commission rules, managers only have to disclose the range in which their stakes fall. The top range, over $1 million, is too low, he says. The bottom range, between $1 and $10,000, means a manager gets credit for investing as little as $1, Kinnel adds. He says fund managers should be asked to disclose the exact dollar amount of their stakes, as is required for corporate insiders.