One criteria that I initially search for is manager tenure.  This is how long the current manager or co-managers have been running the mutual fund.

I like to use this as one of my criterion as the results and direction of the fund are likely to follow the same line the longer a manager has been there.  So what exactly should you be looking at?

What Does a Mutual Fund Manager Do

First let’s start with what a manager actually does.  It is the fund manager’s job to decide what investments to make with the mutual fund’s money.

They do this by reviewing what information the analysts provided (an analyst’s job is to dig through all the corporate information and determine what companies are worth sending on to the manager for further review), meeting with a company’s management, looking over fundamentals and various other tools.

They also determine when to sell an investment and what direction the fund should take to achieve its objective, otherwise known as what strategy they are going to use.

What to Look For in a Fund Manager

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.  This will enable you to see what the track record is for the current management team, not the previous managers.  While the prospectus already states the funds goals and objectives, different managers may have different opinions on how this should happen (different strategies).

Sometimes a fund company will have a defined investing style and methodology that they have their managers fit into, and some allow the managers the flexibility to decide how to determine what to invest in.  Unless you know what the particular fund does it is best to take closer look at the most current results.

For newer managers, I will look at the returns of the fund both since the new management and before new management.  What I am really 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.

I personally look at newer managers as having been there less than five years.  Over five years there should have been enough ups and downs in the market that the five year and lower return numbers gives me enough information to be comfortable with the new management.

Other Things to Look for With New Managers

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 value stocks versus growth stocks, or 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.

Tenure and History of All Managers

Look at the list of managers on the management page of Morningstar. or in the prospectus from the funds website.  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.

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 hopefully pick a winner.  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 option.

As always, trust your instinct while gathering as much hard evidence as possible.