What to consider when a fund has a change of manager

Fund manager changes are a common occurrence in the investment world. Managers may move to new fund companies, shift within their current firm, or even leave for entirely different careers. These changes can be due to personal decisions, strategic moves by fund houses, or in response to lacklustre performance.

For investors, these transitions can bring both opportunities and challenges. Knowing how to assess and respond to such changes is crucial to protect and grow your investments.

The art of fund selection

When it comes to deciding whether to stick with or switch from a fund after a manager change, there is no one-size-fits-all answer. Each decision will vary based on the specific fund and the unique perspective of the individual investor. Fund selection is part science, involving thorough analysis and data, but it’s also part art, tapping into intuition and personal judgment.

Sometimes, these decisions come down to a gut feeling — an intangible sense of what seems right or wrong for your portfolio. There are no definitive answers, and often only time will reveal whether a decision was successful. At the end of the day, investing has a human element that cannot be easily quantified. With that in mind, here are a few things we think every investor should consider when navigating fund manager changes.

Understanding the change

The first step when a fund manager change occurs is understanding why it happened:

• Voluntary: Managers sometimes retire or pursue new opportunities, such as starting their own fund or taking on different responsibilities. These cases often come with a smoother transition, especially if a successor has been prepared and the fund has undergone a long handover period for investors.
• Performance-related: If a manager leaves due to underperformance, the fund house may seek a new approach to improve results. This can signal potential instability or a positive refresh, depending on the new manager’s capabilities.

Evaluating whether the change is positive or negative involves considering the context and the reasons behind the move.

Assessing the potential impact of a fund manager change

1. Investment Process: First and foremost, investors need to ask whether the new manager will maintain the current investment process or implement significant changes. A consistent strategy suggests that the fund may continue to perform similarly, while substantial alterations could mean a shift in risk and return dynamics. Are you comfortable with these potential changes?
2. Manager Experience: Next, assess the experience of the incoming manager. Are they a longstanding co-manager on the fund who knows the process? If not, do they have a proven track record in managing similar funds? And if so, how did they perform in various market conditions?
3. Commitments and Focus: You might want to consider their workload as well. Consider whether the new manager will be solely focused on this fund or managing multiple portfolios. A heavy workload could divide their attention and affect performance. This is especially important if they are taking on new responsibilities at the same time.
4. Support and Resources: It’s important to consider the resources available to the new manager. Does the new manager have the backing of a strong team and adequate resources? Will co-managers and analysts remain?
5. Fund Inflows and Outflows: Significant shifts in investor behaviour, such as large withdrawals or sudden new inflows, can influence a fund’s strategy. These actions may force the manager to adjust their asset allocation, potentially impacting returns.

FundCalibre’s approach

At FundCalibre, we understand how crucial a fund manager’s track record is to fund performance. This is why, in most cases, when a fund manager leaves, the fund loses its Elite Rating unless an experienced co-manager steps in. This approach ensures that our ratings reflect only those funds we believe continue to offer superior quality. It’s also why we launched our Elite Radar — our watchlist. A number of these funds will have new managers who are still working to build their track record on a fund, but because of factors outlined above, we believe they have the ability to become Elite Rated in the future.

So, should you stick or should you switch?

When faced with a fund manager change, resist the urge to make a hasty decision. There’s no one-size-fits-all answer and every fund – and manager – should be evaluated on their own merit. That being said, here are some factors to weigh up:

• Communication: Gauge the transparency and communication from the fund house. Have they been clear about the reasons behind the change and what the new manager brings to the table? Regular updates and open communication are positive signs that the transition is being managed well.
• Consider the alternatives: If you feel uneasy about the change, consider other funds with similar investment styles or objectives. Compare their track records, risk profiles, and management stability.
• Patience vs. proactivity: Depending on the situation, it might be wise to wait and see how the new manager performs, especially if they have a strong track record. On the other hand, if there are red flags, such as a complete overhaul of the strategy or early signs of underperformance, switching funds could be the better option.

Changes in fund management don’t always mean trouble, but they should prompt a careful review of your investments. By taking the time to understand why the change happened and evaluating the potential impact, you can make informed decisions that align with your long-term goals.

At FundCalibre, we keep our users informed with updates on fund manager changes and Elite Ratings, helping you stay proactive in managing your portfolio.