When a “star” fund manager moves to a different company, as famed bond manager Bill Gross did last month, leaving PIMCO for Janus, investors often wonder if they should move on, too.
But there’s no way to know in advance if a management change will have a positive or negative impact on a fund. That’s why we focus on what we do know: how the fund performs compared to other funds with similar risk. By focusing on performance, we were led to sell Bill Gross’s PIMCO Total Return fund back in 2011.
Fund managers, like markets, change over time, and Upgrading leads us to respond to these changes. It kept us invested in Fidelity Leveraged Company Stock (FLVCX) for three years after its star manager, David Glancy, left. We held FLVCX from May 2003 to November 2006 (Glancy left in July 2003), and from November 2012 through October 2013.
Upgrading also led us through Jeffrey Gundlach’s move from TCW to DoubleLine. In 2009 Gundlach, manager of TCW Total Return Fund, was fired from TCW in an ugly falling out and promptly started DoubleLine funds. Both TCW and DoubleLine funds have done well, and we currently own funds from both families in the Flexible Income Portfolio.
Many Factors Affect Fund Performance
It’s unclear how much of a fund’s performance can be attributed solely to the fund’s manager. Most fund managers aren’t acting alone. They have teams of experienced analysts and are backed by top-notch research departments and efficient trading desks. Other factors affect a fund’s performance: a fund’s style (even the best value manager is unlikely to outperform when growth is in favor), its strategy, and even the corporate culture of the fund company can impact a fund’s performance.
Academic research also cast doubt on the importance of a fund’s manager. A June 2003 study by Emory University professor Klaas Baks traced the careers of over 2,000 managers who moved from one fund to another between 1992 and 1999. Baks found that “while mutual fund companies will undoubtedly continue to create star-managers and advertise their past track-record, investors should focus on fund performance.”
A September 26, 2014 Bloomberg article echoed this, noting that “the biggest firms, like Blackrock Inc. and Fidelity, now mostly do without big fund manager stars. That helps put the emphasis where it belongs—on performance.”
Judge Funds by Performance, Not Management
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