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Is It Better To Have A Team Or A Single Manager Overseeing Your Fund?
FYI (The Linkster has always preferred a single manager. Group think leads to under performance.) What’s the ideal number of portfolio managers for an investment fund? Whether you’re a proponent of a single-manager model or prefer shared responsibility, there’s a saying to support your view: “Two heads are better than one.” “Too many cooks spoil the broth.” Regards, Ted https://www.bloomberg.com/news/articles/2018-06-11/is-it-better-to-have-a-team-or-a-single-manager-overseeing-your-fund
I have a strong bias in favor of team-managed funds, especially in taxable accounts -- they have a lot less succession risk that may oblige me to sell and take a tax hit. And I have this sense that most of the famous funds that have blown up (Fairholme, Bill Miller's old funds, maybe Bill Gross's latest bond fund) all have a star manager. I guess a team maybe dampens down the bigger bets, or doubling down on bad bets? I think Fairholme really only went off the rails after Berkowitz lost his co-managers.
I'm for teams -- Primecap, American Funds are great examples of that. Even the 'group' model like most funds is good, though they're not as segregated in management like the 2 companies I listed.
Unless I'm mistaken mutual fund team management structures are not the same. How many funds managed this way are done collectively by all members of the team? At American, I believe each manager is given a slice and manages that slice independently. Very similar approach taken by some funds of funds like MASNX.
Just saying all team managed funds are not created equal. Similarly speaking of Bill Gross, just recently people were alleging he got all credit where as his "deep analyst bench" at PIMCO was the reason. I can better understand a comparison between say a Ken Heebner or Bruce Berkowitz VS a team managed fund where everyone has input in what goes into a portfolio. In large companies with single fund manager, he is not really navigating the ship solo and relies on a lot of support staff.
Basically, now wondering if that article needed to be published. I will now wait for "Are concentrated funds really worth the risk"?. Something to keep the paychecks coming. What would "they" do without us?
I am for teams as well. As much as I love AKRIX, I sleep better at night with my FMI Funds. If, for any reason Chuck Akre was not at the helm, I would reduce my exposure considerably. I check in from time to time with his former crew and whereas their returns don't suck, they no longer should command the price they're asking. Whereas with FMI, they appear to have a structure that would survive without any one person (ala Dodge and Cox with better beta).
No strong opinions on teams vs stars, but FWIW the "teams" at American Funds are one of the main reasons that we are comfortably retired with minimal financial concerns.
Its far better to have a fund that outperforms its benchmark on a consistent basis. Is anyone aware of any studies that try to correlate such outperformance with team based or individual approaches? That might help answer the question. In the meantime I don't really care how a fund is managed if they're doing well.
Here's a FT article discussing a 2016 CFA Financial Analysts Journal paper studying The Effect of Management Design on the Portfolio Concentration and Performance of Mutual Funds. Here, "management design" means the use of one manager or multiple managers.
Unlike the Bloomberg column that looked only at the ten largest funds in each of three groupings, this paper used CRSP data for the whole US fund market, excluding only funds holding fewer than 10 assets, less than $500K AUM, and funds with under 12 months history.
I think it is worth reading the paper itself (one can skim/skip the detailed analyses and focus on the plain English sections) as well as the FT piece. The paper has many observations, including:
We showed that portfolios of funds managed by a single manager tend to have a higher degree of both within- and cross-sector concentration. A singlemanager management design, on average, achieves a better net performance and has a higher expense ratio. ...
First, all else being equal, equity mutual fund investors may be better off selecting funds with portfolios concentrated in the top one or two stocks (relative to the stocks’ own size) within each sector. Investors could also benefit from selecting funds that are concentrated in a few industry sectors relative to the market portfolio.
My initial impression is that while single management vs. multiple/team management tends to lead to more highly concentrated portfolios, it is that level of concentration more than the management structure that matters. Haven't read the paper carefully enough yet to verify that impression is entirely correct.
Note also that it also observes that older funds run by long term managers tend to underperform. Your guess is as good as mine as to how one picks newer funds run by short term managers.
Fascinating. Danoff is around 58 and Tillinghast just turned 60. I wonder if 10-15y from now underperformance of their funds will have obtained and be clear. The article possibly nods toward the well-known Yacktman / Heebner path, like having your own broker.
@davidrmoran Well, Yacktman had sons...a succession plan of sorts. After Heebner who? Yacktman added his son as co-manager long time back. It was obvious who would take over his funds. With Heebner, still no co-manager.
I think CGM gets sold before the next market downturn.
The paper calculates a negative relationship between a manager's age (or longevity) and fund performance, statistically significant at the 1% level (more significant than the usual 5% threshold), shown in Table 4.
Is the cherry picking to show that trends allow for statistically insignificant outliers? VPMAX, team managed, has outperformed FCNTX historically over most intervals, and has a superior long term record. That isolated example shows that team management can beats star management; an exception that proves the rule.
Did you identify Tillinghast because FLPSX already supports some of the paper's conclusions: that once managers are added to a fund (here, in 2011) that its relative performance tends to decline; or that the longer a manager serves at a fund the more its relative performance tends to decline?
FLPSX's 3 year performance is 45th percentile, its 5 year performance is 39th percentile, its 10 year performance is 30th percentile, its 15 year performance is 9th percentile.
Not sure what my thinking was, always such a hazard here, just speculating idly; should have said further underperformance will be clearer, shouldn't I have?
More often than not, I do like one manager, it is usually the reason I am drawn to a fund, assuming he/she has enough analysts doing the grunt work. However, when it comes to an allocation or balanced fund, I like a team, since the equity side and bond side take very different talents. Regarding new or existing funds with new managers, I like new managers who have a strong record elsewhere before, such as AOFAX, which I recently added after seeing posts regarding her record at Brown Capital mentioned by Old_Skeet.
I have funds within my portfolio that have a single manager while some others are team managed. Generally, I hold the team managed funds much longer than the single manager funds. However, if a fund does not meet my expectations it becomes history I don't care whether it is a single manger fund or team managed ... Well, it's gone.
With a team managed fund and a manager change takes place there are the other managers left to carry on. When a single fund manager leaves ... Well, who is left to carry on?
With this, I usually sell a single manager fund when its manager leaves.
Comments
Regards,
Ted
Christ, drop the snot, seriously. Again.
LB of all posters here does NOT have a lot to learn about funds.
Word 2: Dodge&Cox.
Or just go tell Snowball that he too has 'a lot to learn about funds.'
Don't get any more insufferable, k?
Just saying all team managed funds are not created equal. Similarly speaking of Bill Gross, just recently people were alleging he got all credit where as his "deep analyst bench" at PIMCO was the reason. I can better understand a comparison between say a Ken Heebner or Bruce Berkowitz VS a team managed fund where everyone has input in what goes into a portfolio. In large companies with single fund manager, he is not really navigating the ship solo and relies on a lot of support staff.
Basically, now wondering if that article needed to be published. I will now wait for "Are concentrated funds really worth the risk"?. Something to keep the paychecks coming. What would "they" do without us?
That sounds right.
Unlike the Bloomberg column that looked only at the ten largest funds in each of three groupings, this paper used CRSP data for the whole US fund market, excluding only funds holding fewer than 10 assets, less than $500K AUM, and funds with under 12 months history.
I think it is worth reading the paper itself (one can skim/skip the detailed analyses and focus on the plain English sections) as well as the FT piece. The paper has many observations, including: My initial impression is that while single management vs. multiple/team management tends to lead to more highly concentrated portfolios, it is that level of concentration more than the management structure that matters. Haven't read the paper carefully enough yet to verify that impression is entirely correct.
Note also that it also observes that older funds run by long term managers tend to underperform. Your guess is as good as mine as to how one picks newer funds run by short term managers.
Danoff is around 58 and Tillinghast just turned 60. I wonder if 10-15y from now underperformance of their funds will have obtained and be clear. The article possibly nods toward the well-known Yacktman / Heebner path, like having your own broker.
I think CGM gets sold before the next market downturn.
The paper calculates a negative relationship between a manager's age (or longevity) and fund performance, statistically significant at the 1% level (more significant than the usual 5% threshold), shown in Table 4.
Is the cherry picking to show that trends allow for statistically insignificant outliers? VPMAX, team managed, has outperformed FCNTX historically over most intervals, and has a superior long term record. That isolated example shows that team management can beats star management; an exception that proves the rule.
Did you identify Tillinghast because FLPSX already supports some of the paper's conclusions: that once managers are added to a fund (here, in 2011) that its relative performance tends to decline; or that the longer a manager serves at a fund the more its relative performance tends to decline?
FLPSX's 3 year performance is 45th percentile, its 5 year performance is 39th percentile, its 10 year performance is 30th percentile, its 15 year performance is 9th percentile.
With a team managed fund and a manager change takes place there are the other managers left to carry on. When a single fund manager leaves ... Well, who is left to carry on?
With this, I usually sell a single manager fund when its manager leaves.