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John Waggoner: Morningstar: Advisers Are Overreacting To Fund Manager Changes
Fund manager changes, especially lead managers and solo managers, should absolutely raise a red flag. There have been many instances where I can look back and say that I should have reacted to manager changes sooner. The fact that a fund is team managed should not change the importance of going back and seeing what that person's contributions were to the success of the fund during her/his tenure. Great example is IVAEX, where one of the team left in mid-2014. The fund had been struggling already that year, and it just got worse. Something was clearly not working with the fund's macro strategy, and the next year was even greater under-performance. In fact, the fund never recovered, and assets dropped from almost $13 billion to $1 billion at year-end 2016. Was the manager leaving the reason? No, but it simply was another sign that should have triggered a sale. We held until mid-2015, and fortunately were able to extract ourselves with some decent long-term gains for the most part. Should you sell every time a team manager leaves? No, but the event should mean a re-evaluation of the thesis for owning the fund and very close monitoring for a period of time thereafter.
For solo managers, and fortunately there are fewer now than in the past, this event should absolute put any additional purchases on hold until an evaluation of the new manager is completed. This is difficult for individual investors, but fortunately we have access to fund managers and can interview them.
Lesson learned over the years: funds that employ active macro and thematic strategies are very difficult to evaluate sometimes and can turn on a dime performance-wise. It's not that the managers have taken dumb pills, but rather their unusual approach can suddenly go out of favor in a big way. You really need to understand how the investment philosophy translates to day-to-day management and the many risks involved in the strategies. These funds should be kept on a short leash.
@BobC; My standard rule of thumb is give the new fund manager or managers at least a year before selling a fund that has had a manager change.. A prime example is when Kris Jenner left T. Rowe Price's Health Science Fund, and was succeeded in a short period of time by two new managers.. Taymour Tamaddon took over for Jenner in February of 2013, and ran the fund until he was sccceeded by Ziad Bakri in April of 2016.
The M* study is very compelling, fund owners should not become overly concerned when a fund they own changers it manager. Regrds, Ted
Again, it really depends on the fund and how the management is structured and what strategy is being employed. But any significant management change should be noted and followed closely. Price funds have done an exceptional job of handling management changes over the years. Others often not so well. The "star" manager funds can be particularly difficult, as carew388 noted about Harbor International, although performance there in 2011 and 2012 remained in the top quartile. Last five years, however is only in 84th percentile. Perhaps a delayed reaction to a strategy change? Not sure, since I do not follow the fund any longer. Ted's comment about giving the new manager(s) time is spot on. Manager change should not be an automatic trigger to sell.
Comments
For solo managers, and fortunately there are fewer now than in the past, this event should absolute put any additional purchases on hold until an evaluation of the new manager is completed. This is difficult for individual investors, but fortunately we have access to fund managers and can interview them.
Lesson learned over the years: funds that employ active macro and thematic strategies are very difficult to evaluate sometimes and can turn on a dime performance-wise. It's not that the managers have taken dumb pills, but rather their unusual approach can suddenly go out of favor in a big way. You really need to understand how the investment philosophy translates to day-to-day management and the many risks involved in the strategies. These funds should be kept on a short leash.
The M* study is very compelling, fund owners should not become overly concerned when a fund they own changers it manager.
Regrds,
Ted
Disclosure: we hold both funds.
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