Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

In this Discussion

Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

    Support MFO

  • Donate through PayPal

Your Mutual Fund Manager Just Doesn’t Matter Much Anymore

FYI: Sometime back in the 1990s my financial adviser and I were discussing an investment in the Fidelity Contrafund, a high-performing mutual fund helmed then — and still — by the legendary Will Danoff.

I can’t recall exactly, but I expressed some misgivings about the fund’s fees.

“You’re buying Will Danoff,” my financial adviser said.
Regards,
Ted
https://www.washingtonpost.com/business/economy/your-mutual-fund-manager-just-doesnt-matter-much-anymore/2017/08/07/f3cda63a-7b9e-11e7-83c7-5bd5460f0d7e_story.html?utm_term=.b837b61e5d38

Comments

  • Right. I'm entirely on board with the claim that the average manager is just a cog in a team-managed, marketing-sensitive team whose mantra is "don't get noticed!" The question is, what useful insight does that convey? One line of argument is "avoid all actively managed funds." The other line of argument is "avoid, at the very least, all funds which merely pretend to be actively managed but whose record shows no continued distinction on the returns side of the ledger or on the risk side."

    David
  • "Management change in a fund has no bearing on future returns."

    Nonsense, and the M* report said no such thing. While funds, on average, may perform the same after changes as before, that says nothing about individual funds. If half the replacements were by managers who improved their fund's performance, and half the replacements were by managers who degraded their funds, the average would be a wash.

    What the M* study said was that they couldn't figure out a priori which changes were the better ones, not that the a change in an individual fund had no bearing on the fund's future returns.

    I'll take Rekenthaler's summary of the report over WaPo's. If you want to skip the anecdote and get to his analysis, skip down to the Mixed Signals section.

    Rekenthaler Report, What to Do If Your Fund Changes Portfolio Managers

    M* report, The Aftermath of Fund Management Change

  • as shown by the Danoff takeover from Vinik, or maybe it was the guy before
  • msf
    edited August 2017
    Vinik took over from Morris Smith (FMAGX). If you're talking about taking over Fidelity "flagship fund" status, as I recall Contra's AUM passed Magellan during Stansky's tenure.

    Stansky is a prime example of what the report is talking about. Vink's performance had disappointed investors (Vinik was early, not wrong, but that didn't seem to matter), so Stansky was moved in. Stansky had manged FDGRX very well for its first decade before moving over to Magellan. But he tempered his style at Magellan, which was marketed to retirement/pension plans, and gradually became an underperforming closet indexer.

    https://www.advisorperspectives.com/pdfs/newsltr08-2-4-3.pdf

    Single, good manager moved from one LCG fund to another, and did poorly. Hard to predict even with single-manager-run funds and managers with long track records.
  • MJG
    edited August 2017
    Hi Guys,

    There is no universal correct answer to the fund management question. It depends on the specifics. Most funds these days are team managed, like 75% of them. For this majority, the answer is in the No bracket. But a respectable number of funds are managed by a mostly single or small group cohort that has a decisive influence on market decisions. It matters in this active group of fund managers.

    The primary example here is the Warren Buffett/Charley Munger team. Any change here will likely have a major impact on how their firm will survive amd function. Even with this illustrious team, yearly performance varies over a wide range. Skill matters when investing, but luck and opportunities are unpredictable and also enter the performance equation. In the marketplace, the only certainty is outcome uncertainty.

    Certainly not all fund managers are equal. Do you remember the Steadman fund family? I do. Those funds had dismal performance records for many years. Just like there are some long term losers, there are some long term winners. The trick is to identify them early. That's not an easy job.

    Good luck for a successful search. A significant number of exceptions always exist.

    Best Wishes

    ADDED THOUGHT: Statistics are helpful, but can be misleading when incompletely reported. It is not enough to simply report the average of a Normal distribution. That's nice, but not enough. The standard deviation, the maximum and minimum values, and the sample size are needed to permit a meaningful interpretation of that statistic. Buyer beware!
Sign In or Register to comment.