Beware of Mutual Fund Manager Changes.

I’m going to tell you about a relatively unknown website that tracks mutual fund manager’s comings and goings. That’s news that mutual fund investors need to know. Here’s why.

Mutual fund analysis is usually predicated mostly on the fund’s historical performance statistics.

Although some would disagree, for me, using a fund’s historical results to forecast future performance makes sense as long as whoever is responsible for the performance, typically the fund manager, stays on the job.

In my view, a fund manager with a strong track record of beating the market is likely to continue his or her winning ways. Conversely, a serial underperformer is likely to continue to underperform. That’s why I stick with mutual funds that have been managed by the same person for at least three years, and preferably five.

While it’s easy to avoid picking new funds with unseasoned managers, what happens when a manager leaves a fund that you already own? More to the point, how do you even know that one of your fund’s managers has left?

Keeping track of fund manager changes is job number one at FundAlarm (www.fundalarm.com ), a free site run by investment advisor Roy Weitz. Even better, Weitz puts the fund manager changes in perspective, weighing in with his view as to whether the change is more likely to help or hurt the fund’s future performance.

For each management change, Weitz gives you the nuts and bolts—who’s leaving, and who’s taking over, and where they came from. That’s important information, but Weitz’s “FundAlarm Comments” are even more helpful. That’s where Weitz gives you his take on the significance of the change, and he doesn’t beat around the bush.

For instance, when discussing the outlook for a fund that recently replaced its outgoing manager with two other fund managers, Weitz opined; “X and Y are essentially untested at their own funds, let alone this one, and they have to be considered a big question mark. If we owned this fund, we’d be looking for an alternative.”

Weitz updates the fund manager change listings once a month, on the first. Find them by selecting Recent Manager Changes on FundAlarm’s homepage. The most recent month’s changes are listed at the top, in alphabetical order. Earlier changes going back one year are listed below the recent changes. You can see older manager changes going as far back as the site’s inception in 1996 by selecting the Archive of Manager Changes at the top.

You’ll probably enjoy scrolling through the older listings the first time that you visit the site. I find Weitz’s gossipy tidbits interesting, even if I’ve never owned the funds that he mentions. On future visits, you can see the recent month’s additions by scrolling through just the top section of the recent changes page.

Weitz’s monthly Highlights and Commentary page, also an interesting read, includes recent news and gossip about the mutual fund industry in general. Get there by going back to FundAlarm’s homepage and then selecting Highlights & Commentary.

Weitz also maintains lists of outperforming and underperforming funds, based on comparisons to the appropriate index such as the S&P 500. The Honor Role shows the outperformers, and the 3-Alarm page lists the underperformers. The worst underperformers are also shown on the “Most Alarming 3-Alarm Funds ” page. All are accessible from links on FundAlarm’s homepage.

Finally, FundAlarm’s Discussion Board is another area worth checking out. The boards are moderated, meaning that rude, off topic, or otherwise offensive messages don’t get posted. With more than 25 posts on an average day, the board is amazingly active for a relatively unknown site. However, most of the posts come from “Ted,” described on the site as a night owl residing in Olympia Fields, Illinois.

Ted’s postings consist mostly of links to interesting news and commentary about mutual funds, and investing in general. According to the site, although officially retired, Ted has a day job coordinating the financial content for a consortium of 72 public libraries. Ted doesn’t fill his posts with links to stories you see everywhere. I spend all day long on the web, but all of Ted’s links that I clicked took me to stories and commentary that I wouldn’t have found on my own.

FundAlarm is in many ways, a throwback to the early days of the Internet. It’s a neat, low-key site with useful information for mutual fund investors. There are no annoying pop-up ads, or any other kind of advertising for that matter.

published 8/24/03 & 8/31/03