The study says … do nothing!
Stay the Course
If your fund manager dies tomorrow, you really shouldn't care.
Such is the conclusion reached in Morningstar's new white paper, "The Aftermath of Fund Management Change," although the authors (Madison Sargis and Kai Chang) don't phrase the matter that way. Rather more politely, they write, "We find no relationship between any type of [fund] management change and future returns."
No argument here. At the start of 2014, with PIMCO's reputation in tatters after the departure of chief investment officer Mohammed El-Erian and (accurate) rumors that manager Bill Gross might soon follow, this column ran the headline, "PIMCO Total Return: Not Fussing." The story, it continued, "is messier than the investment results will be."
My thinking ran along these lines:
>As PIMCO Total Return PTTRX had matured, becoming the industry's largest fund, its performance had regressed to the mean.
>Investors worried that this performance might slip another notch, because of both the fund's managerial turmoil and because the fund would suffer losses while selling securities to meet redemptions.
>Those concerns seemed unlikely. PIMCO had dozens of experienced investment professionals, and most of its holdings were very liquid, so they could easily be traded without roiling the markets.
>What's more, because of the glare of publicity, PIMCO was unlikely to take major chances with the fund. It would be run relatively cautiously to deliver returns that didn't stray far from the norm.