If you invest in a fund, you need to ask some tough questions when the star manager heads for the exit.
Basically, the decision you have to make comes down to a simple choice – do you follow the man or the brand?
James Bateman, head of portfolio management at Fidelity Solutions, has mulled over this poser and come up with some detailed questions and points investors need to consider.
Quick exit or long drawn out departure?
“The hand-over process is important,” said Bateman. “How the hand over is managed can affect fund performance. An extended hand over allows the departing manager to train up a successor.
“A delay in departure also gives investors more time to consider their options.”
Did they jump or were they pushed?
“Managers can leave for lots of reasons,” explained Bateman. “Sometimes it’s just a fact of life, such as illness, retirement or personal issues. For others, a move up the career ladder or an offer they can’t refuse can be the trigger.
“The big issue is whether the circumstances affect how the manager approaches his work before leaving, which knocks on to how the fund performs.
“The same goes if they overstay their welcome. Maybe ambition and that hunger to do well can drop away.”
Who’s the new boss?
Not all departures are bad news. Just like a football team can improve with a couple of new signings and a star striker who scores more goals, so can an investment fund.
“The interesting point is why did you invest in that fund and is the new manager someone who is a steady hand and maintains consistency or someone who has new ideas and a different philosophy,” said Bateman.
“If the new manager is from within, it’s likely they will have the similar values and opinions as the person they replace, sometimes, but by no means always, someone from outside may have completely different ideas.”
Check the fund’s return, risk and focus still works for you as an investor, is his advice.
Keep an eye on other funds
Your investment objectives may have changed and another fund may offer a better match to your strategy, so always think about diversifying, but consider the costs of moving before selling up
