What To Do If Your Mutual Fund Changes Managers «

Astas Romas Finance

Investing, Retirement, Saving

October 22nd, 2009

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Oct, 22 2009

What Is A Mutual Fund Manager?

The individual (or individuals) who are responsible for implementing a mutual fund’s investing strategies and the management of portfolio and trading activities is known as a mutual fund manager or more simply, the fund manager. Additionally,

can be managed in a number of ways such as:

• by one person

• two persons or co-managers

• a team of three or more persons

Typically, fund managers are compensated by a fee which is oftentimes a percentage of that mutual fund’s managed average assets. In order to qualify for the position of fund manager, there are certain requirements including:

• high levels of both educational and professional credentials

• appropriate experience in investment management

Anytime you are considering investing in any mutual funds, you should always look for a long term, positive performance history and a fund manager whose track record mirrors the fund’s performance.

How to handle a change in fund managers

What most fledgling investors don’t realize is that the decision on investing in a particular mutual fund is to purchase the fund or the manager. That is the biggest challenge encountered when a mutual fund changes managers. Although this is not always the case, a change in fund management typically signifies a “red flag” and investors will need to put on their detective hats.

In most cases questions will need to be answered, answers will need to be deciphered, and a decision will need to be made regarding selling the fund or sticking with it. Naturally, it is simpler to stick with the fund manager since they have been responsible for some or possibly all of the fund’s performance. However, many fund companies will dictate a fund’s investment strategy and style, oftentimes demanding that the fund manager follows those mandates. This results in many transitions becoming relatively seamless.

In recent years, increasing numbers of fund companies have shut down the guru-making machinery which was their driving force in the 1990’s. Instead they are hiring management teams that may not be negatively or positively impacted by losing a single member. However, the departure of a fund manager is usually an indication or a warning and not so much an indication for you to sell off your fund.

What you want to remember is that a fund manager usually weighs the pros and cons when a top level executive departs a fund that is in their portfolio. So you need to be very critical and methodical as well as avoiding those knee-jerk reactions that you may regret later. Some things that you want to consider are:

• why the change in management was made

• if the transition was one that raised a lot of eyebrows or did it go smoothly?

• did the change equate to promoting a talented analyst or manager within that company?

• will that new manager make a positive difference in the performance of the fund?

In most instances, considering the above will help you in the decision making process.

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