1. Passive Vs. Active Management
  2. Fund I-Q No.4: Manager Tenure and Structure
  3. Scoring Fund Management Data
By Richard Loth (Contact | Biography)

A long-term fund performance record, preferably over a 10-year period, provides the best indicator of a manager's investing abilities. Accordingly, one of the critical mutual fund investment qualities is to have a match of managerial tenure and this performance period, or at least one that covers a meaningful time span.

To illustrate this point, let us compare two different funds. The XYZ Fund has an annualized 10-year total return of 11% and has been run for those 10 years by the same manager. In the case of the ABC Fund, it has the same 10-year annualized total return of 1%, but it has had two different managers. One's tenure covered the first nine years and the second has only been on the job one year. (To learn how annualized returns are calculated, read All Returns Are Not Created Equal.)

Managerial Tenure
On our Fund Investment-Quality Scorecard, the XYZ Fund's current manager and performance would have a highly favorable 10-year match. We know that past results are no guarantee of future performance, but that experience is infinitely better than a crystal ball! In the case of the ABC Fund, the manager who produced 90% of the fund's excellent results is gone. Will the second manager be just as good? We hope so, and oftentimes that's the case - but things can also go in the other direction.

Common sense tells us that the more closely matched a manager's tenure is with a solid fund performance record, the better. Nevertheless, because managerial change is a fact of life in the mutual fund business, the free FundAlarm website can be very useful. This site puts fund manager changes in perspective by providing views on whether the change will be positive or negative for the fund's future performance. (For more on this topic, see Will A New Fund Manager Cost You? and Should You Follow Your Fund Manager?)

Management Teams
If a fund is run by a management team, the tenure issue becomes moot. There is always someone in the driver's seat that knows the road. And, while index funds have managers, their role is simply that of a technician making sure the mechanics of the index are working efficiently. In the case of a fund run by co-managers, it is assumed that, if there is a departure, there still remains a manager with experience at the helm. If that is not the case, the co-managed fund will have to be looked at as if it were run by a single manager and judged accordingly.




The solo fund manager is still much esteemed in the mutual fund industry, with some of them even reaching celebrity status. However, the trend in fund management is toward multiple managers. In some cases, co-mangers or team management can give a mutual fund higher investment quality than it would have with a single manager. Having said that, it must be recognized that there is a mutual fund managerial elite with outstanding long-term performance records. These managers are highly regarded, and deservedly so.

The Fund I-Q Scorecard includes an entry for a fund manager's personal investment in the fund being managed. Obviously, if a manager has a healthy amount of his or her own money invested in a fund, it would certainly have to be considered a confidence builder by the other fund investors. As alluded to previously, this information is not yet universally available and, admittedly, is not easily obtained by the general investing public. However, oftentimes, comment in this regard appears in the financial press and in Morningstar's commentary. And, if an investor considers it materially important to his or her investment decision, there's no harm done in putting the question directly to the fund's management.

Return to the Main Menu.


Scoring Fund Management Data
Related Articles
  1. Investing

    Should You Follow Your Fund Manager?

    Learn how to tell if a fund in flux is still a suitable investment.
  2. Investing

    Mutual Fund Investment Quality: Conclusion

    Check in here for an overview of mutual fund investment quality and how to find it.
  3. Financial Advisor

    How to Rate Your Mutual Fund Manager

    What to really look for when you're deciding on a mutual fund.
  4. Financial Advisor

    5 Characteristics of Strong Mutual Fund Shares

    Discover some of the basic characteristics shared by good mutual funds that investors can use to help them in selecting funds.
  5. Investing

    Choose A Fund With A Winning Manager

    We break down the key components of analyzing a fund manager's performance so you can find a winner.
  6. Investing

    What Fund Managers Do

    A fund manager is responsible for implementing a fund’s investing strategy and managing its trading activities.
  7. Financial Advisor

    This Is How Much Mutual Fund Managers Make

    Learn about the high-paying salaries of mutual fund managers and the low level of transparency in income reporting by mutual fund companies.
Frequently Asked Questions
  1. Is There a Difference Between the Equity Market and the Stock Market?

    The terms equity market and stock market are synonymous
  2. What Are the Components of a Risk Premium?

    Learn the five main risks that comprise the risk premium and how they affect investors.
  3. What Is an Odd-Lot Buyback?

    Odd-lot buybacks involve lots of less than 100 shares. Learn how companies get these shares back.
  4. How is a company's share price determined?

    Understand the concept behind the Gordon growth model and what it is used to measure. Learn how a company's share price is ...
Trading Center