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This year, Manning has been out with an injury. The Colts are winless. See the connection? If #18 is not on the field, it’s not the same team.
The same is true in the mutual fund business. The fund manager—the person making the buy, sell, and hold decisions—leads the investment team. The name of the fund is irrelevant; the manager makes the difference. If a fund does well for years but changes managers, it’s no longer the same fund.
Recently, there were major changes at two funds I’ve recommended. Corey Gilchrist of the Marsico 21st Century Fund (MXXIX) is out immediately after eight years of leading that fund. And Greg Habeeb, who managed the Calvert Income Fund (CFICX), has been replaced after a 14-year run.
Do these changes mean either of these funds will crater? I don’t know. And candidly, MXXIX was already on my company’s “watch list” because of underperformance. But whenever a fund manager leaves, that investment should be on your personal “watch list” to see how it performs with new leadership. Perhaps there will be a change in strategy or holdings, and those sorts of decisions can have a major impact on your money.
Sometimes a departure is not as alarming. For example, let’s say a manager has led a fund for several decades and decides to retire. He then chooses a trusted, seasoned protégé to be the next in charge. That’s sort of like Steve Young taking over for the San Francisco 49ers’ legendary quarterback Joe Montana in the early ’90s. In that case, there was less cause for concern because fans knew what Young was capable of. But that doesn’t mean you can take your eye off the ball when a fund manager leaves. Changes are changes, and when it’s your investment money in play, you are more than just a spectator.
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Back to Marsico and the Calvert Income Fund. We believe Tom Marsico, who started the 21st Century Fund, will be very involved in the business as he keeps an eye on the new fund manager, Brandon Geisler. But MXXIX will stay on my “watch list” until I know what path that fund will take. As for CFICX, The Mutual Fund Store will be selling its clients’ positions. Why? The new managers might do fine, but they’ve never run a fund of that size and scope. There are enough high-quality corporate bond funds out there with managers who have clear track records. If I take a look at CFICX in a year and like what I see from the new guys, I can jump back in.
Here’s the lesson: Mutual funds are not buy-and-forget investments. And I really wonder how much regular investors know about their funds and the management changes that take place. You can find out about quarterback changes by flipping on ESPN, but you won’t get “quarterback” changes at fund companies quite as immediately. If you don’t have the time and patience to monitor those changes, you should hire someone who will.
Adam Bold is the founder of The Mutual Fund Store, which provides fee-only investment advice and has locations coast to coast. He's also host of The Mutual Fund Show, a call-in radio program broadcast across the country. Bold is author of the book The Bold Truth about Investing (April 2009). Bold is Chief Investment Officer of The Mutual Fund Research Center, an SEC-registered investment adviser, which provides mutual fund and asset allocation recommendations, as well as research to stores in The Mutual Fund Store system.