Some managers quickly invest more than $1 million in their funds, should you follow their lead?
What do you look for in a fund with a relatively new manager?
The first thing is a track record at other funds that indicates the manager has skill. Next, you want other key fundamentals like low costs, high manager investment, a good strategy, and a good fund company.
Looking at some of the shortest-tenured managers in the Morningstar 500, I was impressed by how many had already stepped up to the plate to invest sizable sums in their funds. I'll walk you through some of those examples and then step back to consider that information in the context of other key data. Many of these funds are more suited to your watchlist than your portfolio, but some merit investment today.
First to $1 Million
Lionel Harris didn't mess around. He's the shortest-tenured Morningstar 500 manager to raise his personal investment above the $1 million level. He did it only a little more than one year into his time at Fidelity Small Cap Stock FSLCX. That's a great sign of commitment at his new fund. While this fund's record is pedestrian, Harris' is not. He beat his small-cap growth peer group by 181 basis points annualized in six years at prior charge Fidelity Small Cap Growth FCPGX.
Harris has dialed down his earnings-growth hurdles at this fund but otherwise continues his strategy of looking for strong management, solid cash flows, and a diverse product lineup at companies he buys. The fund is in our small-blend category but clearly has some growth characteristics under Harris. In addition, the fund charges a reasonable 1.10%.
Two other Fidelity funds are next on the list. Fidelity Equity Dividend Income FEQTX manager Scott Offen and Fidelity Magellan FMAGX manager Jeffrey Feingold have invested more than $1 million in their funds in less than two years at the helm. In fact, Feingold is the largest individual shareholder in Magellan. As above, you have funds with poor long-term records but managers with strong records elsewhere. In addition, expenses are low.
However, Feingold and Offen had to alter the strategies that brought them past success. Offen is plying a more disciplined dividend focus here than at Fidelity Value Discovery FVDFX, where he produced solid returns by applying a free-range value strategy. At Fidelity Magellan, Feingold has had to contend with a far greater asset base than he did at Fidelity Trend FTRNX, so it is not a surprise that he has more in mega-caps. He also is shaping his fund around the S&P 500, whereas Fidelity Trend's benchmark was the Russell 1000 Growth. That means that Fidelity Magellan has more in financials and energy than Feingold has had historically.
Because of those relatively big changes, we give Morningstar Analyst Ratings of Neutral to both Fidelity Magellan and Fidelity Equity Dividend Income, though there are certainly some encouraging signs.