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Have Investors Noticed These Manager Changes?

These funds continued to get inflows after the managers responsible for their records departed.

Dan Culloton, 08/28/2014

"Know what you own" is one of the first lessons of investing. It follows that you shouldn't just buy a fund's track record. Before investing, you should make sure the manager or managers who own those results are still on the job. Here are some funds with decent past performance and recent inflows but managers who haven't been around for very long. Are new investors getting what they expect from these funds?

Vanguard Precious Metals and Mining's VGPMX unique approach gives it an attractive risk profile in the volatile equity precious-metals category. That has drawn investors after three harrowing calendar years. The fund has seen slightly positive flows this year--about $64 million--after bleeding $209 million in the three-year period ended in June. Investors buying now, however, should realize that the manager who built much of the fund's long-term record, Graham French, is gone and lead portfolio manager Randeep Somel has been on the job for only a year. Furthermore, Jamie Horvat, who joined him as a listed manager in early 2014, has been with subadvisor M&G for about a year. Somel worked with French for about eight years, and Horvat arrived from another precious-metals boutique. The fund also continues to define its invest­ment universe more broadly than peers, including a wider variety of metals and materials stocks. The fund still gets a Morningstar Analyst Rating of Neutral because of the recent manager changes.

As of mid-2014, Ivy High Income WHIAX was still raking in the inflows even though several members of the management team responsible for its strong historical results are gone. The fund, whose one-, three-, five-, and 10-year trailing returns are each in the top fourth of the high-yield category, had attracted more than $1 billion in inflows this year through June 30. However, we rate it Negative because the fund has had two manager changes in less than a year. Advisor Waddell & Reed fired manager William Nelson, who had been with the firm for nearly 20 years, for reasons unrelated to portfolio management in July. The action came just eight months after Nelson replaced former lead manager Bryan Krug when he left for Artisan Partners in November 2013. Chad Gunther, an 11-year veteran at Waddell & Reed who was previously an assistant manager of the fund, has stepped up and is familiar with the fund's process, but that's a lot of change for a hot-performing, now nearly $11 billion fund in a frothy asset class that already had thin analytical support. Color us wary. (Investors have grown more wary since this story first ran in Morningstar FundInvestor based on second-quarter data. In July, the fund saw $893 million in outflows.)

T. Rowe Price Global Technology PRGTX has steadily gathered assets in recent years and put up respectable results while seeing a lot of manager changes. Joshua Spencer has run the fund for about two years. He replaced David Eiswert in 2012, who replaced Jeff Rottinghaus in October 2008, who had himself replaced Robert Gensler in 2006. Like his predecessors, Spencer came from T. Rowe's analyst staff, where he covered technology stocks. Indeed, you have to have a lot of confidence in T. Rowe's analysts to invest here because every couple of years a new one has been allowed to run it. Returns have held up through all the changes; results remain in or near the the top of its peer-group rankings over all trailing periods. But this fund, with its fairly concentrated portfolio that keeps 47% of assets in its top 10 and a nearly 30% stake in overseas stocks, is not exactly an easy fund to run. It would be easier to believe in it if a more experienced hand were at the helm.



Dan Culloton is an associate director of fund analysis for Morningstar and editor of Morningstar's Vanguard Fund Family Report, a monthly newsletter that offers independent, no-holds-barred guidance on the pros and cons of this dominant fund family. Click here for a free issue of the Vanguard Fund Family Report.

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