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By Christine Benz and Russel Kinnel | 02-18-2015 11:00 AM

When Is a Fund Manager Change a Red Flag?

A manager change is a good reason to re-evaluate a fund, but not usually a reason to sell, says Morningstar's Russ Kinnel.

Christine Benz: Hi, I'm Christine Benz for Morningstar.com. A fund manager change is a catalyst to re-evaluate your position, but it's not always a reason to sell. Joining me to discuss some recent manager changes is Russ Kinnel. He is director of manager research for Morningstar.

Russ, thank you for being here.

Russ Kinnel: Good to be here.

Benz: Russ, some investors may be operating with the assumption that a manager change is always a red flag, always a reason to sell. Is it ever a reason to sell a fund right away if you hear that your manager has changed?

Kinnel: It's definitely always a reason to re-evaluate. I would say it's rare that you need to really jump on it and sell right away. I suppose if you thought this was a fund where only this manager could do what they're doing, if you thought there were going to be so many redemptions that it would actually drive down the holdings in the fund, say it's a small-cap fund, but those are really extreme and rare examples. Generally, you've got time to examine the new manager and look into the process, take your time in evaluating the fund.

Benz: Well, let's talk about that process of deliberation, what you should be looking into. You mentioned you want to look into the new manager's record, certainly, and whatever process he or she will be using. What other things should you try to get your arms around when you hear that there has been a manager change?

Kinnel: So, I want to know what the new manager's experience is, what his or her track record is. Sometimes, they have been a key part of the team for a long time. In those kinds of cases, I know they probably aren't going to change things very much, but I really want to know what their track record is and really understand that before moving on.

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