One of the analytical tools that I use in my practice is the fi360 Toolkit.  They rank mutual funds  and ETFs on 11 criteria, one of which is the tenure of the fund manager.  In order to receive a top ranking here, the manager must have tenure of at least 2 years.  We generally use 3 years in our Investment Policy Statements.

Does this mean that you should dump a fund if you learn that the manager is leaving?  Not necessarily.

The Vanguard  Example

As an example, for many years Gus Sauter was responsible for the management of most of Vanguard’s index funds .  Several years ago he stepped out of the day-to-day management of the funds into the role of the firm’s Chief Investment Officer.  In my opinion, Vanguard’s index products have not missed a beat.

Mr. Sauter is retiring at year-end after the transition to a new index provider for a number of their funds.  On both counts I suspect Vanguard will again not miss a beat.  Why?  People are a critical part of the investment management process.  But so is the process .  Based upon my experience Vanguard has both in place.

Fund manager changes – done well and not so well

In another example, I have used Columbia Acorn International Z fund for a number of years in some client portfolios.  It is an actively managed small/mid cap foreign equity fund.  The fund had been managed by legendary manager Ralph Wanger, he was then joined by his wife (an outstanding fund manager herself) Leah Zell; Zell then was the sole lead manager until May of 2003 after Wangers departure.  She was succeeded at the fund by her two top underlings.  I had notified my clients of the change and suggested a wait and see approach.  This was a wise move as the fund has continued to perform well and also to perform within my expectations for the fund.  Again an example of having solid people in place (including depth) and having a solid investment process in place.

Perhaps the ultimate example of the other side of this coin is the soon to be shuttered Janus Worldwide fund.  Janus was one of the hottest mutual fund shops of the 1990s Dot Com boom in the markets.  The fund was very ably managed by Helen Young Hayes and at its peak had over $44 billion in assets.  The fund was a top performer until the bear market of 2000-02 when the fund’s performance really sagged.  Hayes left the fund in 2003; there have been several managers since, in many ways mirroring the revolving door in the executive suite (five CEOs since 2003).  None of these mangers subsequent to Hayes have been able to duplicate the fund’s past performance, the fund ranks in the bottom 3% of its peer group for the past 10 years.  The fund is scheduled to be merged with another Janus fund shortly.

It does matter who is managing your mutual fund, but beyond that it is important that the fund have a strong investment process in place.  While the fund’s management might seem to be more important for an actively managed fund, in reality proper management of a passive index fund is just as important.

Please feel free to contact me for a review of your investments. 

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