Articles for Financial Advisors

Mutual Fund Manager Changes

Mutual Fund Manager Changes

Advisors often wonder what to do when a favored mutual fund manager leaves a fund or simply retires. According to studies, when a new manager steps in, subsequent returns are somewhat mixed. For example, an August 2012 study from the University of Rochester shows there is, overall, no difference in returns. However, funds that trailed their benchmarks tended to perform better after the management change—an enhanced performance may likely be due to any fund’s returns that revert to the mean after periods of ups and downs. This also coincides with what happens when a manager of an above-average performing fund leaves—returns tend to decline (reversion to the mean).

 

Advisors who wish to take a different approach to a manager departing should consider the following: 

  1. Is the departing manager a core driver for fund performance?
  2. How closely did the new manager work with the departing manager?
  3. How much do sector weightings change with the new manager?
  4. How many of the 10 largest holdings change with the new manager?
  5. Has the fund’s overall turnover rate changed much?

Previous Post
The Vix and Futures

For Advisors by Advisors. Browse all Programs.