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Amen to that! I'm sure Mr. Berkowitz is fraught over Mr. Ritholtz's decision to drop his fund from his reccomended list. NOT! Frankly I almost wish a bunch of shareholders would cash out.
There are a number of reasons we would sell a fund. The top reason is if we are unable to talk to the manager or a member of the team. Since we spend a lot of time on the front end of the decision of hiring a manager, not being able to talk to them after we invest client money is a deal killer.
Second is if a manager is less than truthful. For example, one of the managers at Longleaf Partners gave me an answer to a question, which turned out not only to be false, but it was an obvious lie. We immediately pulled all client dollars.
Third would be if we get vague answers or run-arounds when we ask direct questions about performance. I don't want to hear how investors are stupid not to appreciate how great the fund's stocks are. Most fund managers have specific theses for every stock they own, which include expectations (both short and long-term). We expect the manager to do what they say they will do.
Fourth would be if the manager leaves and we are not told ahead of time. We are major shareholders for a number of the funds we own. To find out that a manager has been fired or is leaving by reading it in the financial press is another deal killer. Even if we are told ahead of time, we want to know why the manager is leaving. And we want to be able to talk to the new manager as soon as possible, too. Unless the new managers has a similar strategy (and, we hope, has already worked with the previous manager), we probably will not stay.
Fifth is if the fund or fund company is sold. Very seldome is this positive. Columbia was sold to Ameriprise. Gag! We had very little with Columbia, but we now have none. We do not see this as a positive change in any way. Higher expenses, fund mergers, managers leaving, and lots of unknowns.
Last is performance. All great managers have periods of underperformance, some as long as 2-3 years, so we really do give them some slack...as long as they do not change their strategy, and that is what caused the underperformance. We ignore the M* ratings, style box comparisons, and M* category rankings, since our view of a fund's style might be very different from M* or Lipper or the other rating services. WE compare funds based on what management tells us their strategy is and how THEY benchmark their fund (and don't change the benchmark on us, either).
I say all of this knowing that individual investors do not have the kind of access we do, but these really do apply to everyone. Even if you cannot talk directly to management, you can call the fund company and talk to one of the fund's marketing staff, and, occasionally someone from the management team. Don't be afraid to ask questions of the fund companies (or your advisor) that fit what I outlined above. These are YOUR dollars; no one will watch them more than you unless you want to pay someone to do that. Even then, you still need to be responsible to some extent.
As for the article, I really don't put much faith in so-called "style drift", since I don't use style boxes. Some of the best managers do not limit themselves to small cap stocks, or large cap stocks. I want great managers, great stock pickers, not people who are forced into a style box, then who we must fire if they are suddenly moved to a different box by a computer! Size can indeed be an issue, so I really like smaller, undiscovered funds. But I want the manager to be able to close a fund if he/she says it's time to do it. The article says performance is not a factor, but I beg to differ. At some point, underperformance DOES become a factor. I am not willing to wait forever for a fund manager to produce good numbers. As I mentioned, give 'em some slack, but hold their feet to the fire over time.
As I tell our clients, what we do is NOT rocket science. But it DOES take time. There is no such thing as a for sure buy-and-hold anymore (if there ever was).
Comments
BR offers a unique discussion on investing and economics. I think his thoghts on when to fire a manager are right on.
SDY vs FAIRX for the next 5 years is another question. I'd probably put my money with Berkowitz if those were my only two options. But they are not.
Second is if a manager is less than truthful. For example, one of the managers at Longleaf Partners gave me an answer to a question, which turned out not only to be false, but it was an obvious lie. We immediately pulled all client dollars.
Third would be if we get vague answers or run-arounds when we ask direct questions about performance. I don't want to hear how investors are stupid not to appreciate how great the fund's stocks are. Most fund managers have specific theses for every stock they own, which include expectations (both short and long-term). We expect the manager to do what they say they will do.
Fourth would be if the manager leaves and we are not told ahead of time. We are major shareholders for a number of the funds we own. To find out that a manager has been fired or is leaving by reading it in the financial press is another deal killer. Even if we are told ahead of time, we want to know why the manager is leaving. And we want to be able to talk to the new manager as soon as possible, too. Unless the new managers has a similar strategy (and, we hope, has already worked with the previous manager), we probably will not stay.
Fifth is if the fund or fund company is sold. Very seldome is this positive. Columbia was sold to Ameriprise. Gag! We had very little with Columbia, but we now have none. We do not see this as a positive change in any way. Higher expenses, fund mergers, managers leaving, and lots of unknowns.
Last is performance. All great managers have periods of underperformance, some as long as 2-3 years, so we really do give them some slack...as long as they do not change their strategy, and that is what caused the underperformance. We ignore the M* ratings, style box comparisons, and M* category rankings, since our view of a fund's style might be very different from M* or Lipper or the other rating services. WE compare funds based on what management tells us their strategy is and how THEY benchmark their fund (and don't change the benchmark on us, either).
I say all of this knowing that individual investors do not have the kind of access we do, but these really do apply to everyone. Even if you cannot talk directly to management, you can call the fund company and talk to one of the fund's marketing staff, and, occasionally someone from the management team. Don't be afraid to ask questions of the fund companies (or your advisor) that fit what I outlined above. These are YOUR dollars; no one will watch them more than you unless you want to pay someone to do that. Even then, you still need to be responsible to some extent.
As for the article, I really don't put much faith in so-called "style drift", since I don't use style boxes. Some of the best managers do not limit themselves to small cap stocks, or large cap stocks. I want great managers, great stock pickers, not people who are forced into a style box, then who we must fire if they are suddenly moved to a different box by a computer! Size can indeed be an issue, so I really like smaller, undiscovered funds. But I want the manager to be able to close a fund if he/she says it's time to do it. The article says performance is not a factor, but I beg to differ. At some point, underperformance DOES become a factor. I am not willing to wait forever for a fund manager to produce good numbers. As I mentioned, give 'em some slack, but hold their feet to the fire over time.
As I tell our clients, what we do is NOT rocket science. But it DOES take time. There is no such thing as a for sure buy-and-hold anymore (if there ever was).
Welcome! OJ
Regards
nath