Manager Changes Diminish These Funds

 

  

A version of this article was published in the August 2021 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor by visiting the website.

Manager changes can rattle a fund at its core, potentially sowing the seeds for a once-strong strategy to falter. While these transitions are not always a cause for concern, they always warrant an evaluation of the new cast's ability to deliver outperformance for investors in the future. Here are several strategies where we think the changes were a real setback.

Royce Opportunity's (RYPNX) entire management team abruptly resigned in April 2021, prompting us to downgrade the People Pillar rating to Below Average from Above Average and the Morningstar Analyst Rating to Neutral from Bronze. Royce Investment Partners tapped Royce Micro-Cap (RYOTX) managers Brendan Hartman and James Stoeffel, and analyst James Harvey, to fill the void. The investment boutique also pulled Boniface "Buzz" Zaino out of semiretirement--he was still serving as a senior advisor--to reprise his role as the strategy's manager and to pass knowledge down to Hartman, Stoeffel, and Harvey. Zaino proved his skill plying a contrarian and often-volatile approach when he held the fund's reins from 1998 to 2018, but it's unclear how long he will stick around. Recently departed manager Bill Hench served alongside Zaino for much of that stretch.

Longtime manager Jeff Rottinghaus plans to retire from T. Rowe Price U.S. Large-Cap Core (TRULX) on April 1, 2022, which prompted us to cut the People Pillar rating to Average from Above Average and the Analyst Rating to Neutral from Bronze. Seasoned manager Shawn Driscoll is stepping up to fill Rottinghaus' role, but he lacks experience running a diversified strategy. Driscoll has been with T. Rowe Price since 2006 and bolstered his natural-resources sector expertise in managing T. Rowe Price Next Era (PRNEX) since 2013, though with mixed results. When Rottinghaus retires, Driscoll will continue to lean on the analyst-run T. Rowe Price U.S. Equity Research (PRCOX) to form this strategy's opportunity set. The fund boasts a team of more than 60 U.S.-focused analysts and has over 150 research professionals across the globe.

Franklin Mutual Global Discovery (TEDIX) lost lead manager Peter Langerman when Franklin Mutual Advisers announced in November 2020 that the CEO and CIO would relinquish management duties in March 2021 and planned to retire around midyear. Katrina Dudley, who also manages Franklin Mutual European (TEMIX), stepped in to fill Langerman's shoes, while Christian Correa, who has comanaged this fund since 2018, took over as president and CIO. This reshuffling coincided with the loss of three other long-tenured managers across the complex. While these three were not named on this fund, the firm's intention to hire at least two analysts to take over some of their responsibilities will likely result in a significant loss of experience across the board. As a result, we downgraded the People rating to Average from Above Average and the Analyst Rating to Neutral from Bronze.

Invesco Diversified Dividend (LCEAX) suffered a significant blow when longtime lead manager Meggan Walsh retired at June 2021's close. The firm hired Peter Santoro to replace Walsh, ending his 17-year stint at Columbia Threadneedle, where he steered several large-cap funds. Santoro leaned on a large analyst team in his former role, whereas he will have coverage responsibilities in his current position--a notable change. To be sure, there is some continuity across the management ranks. Robert Botard, Christopher McMeans, and Caroline Le Feuvre have been in the fold since 2014, 2016, and 2020, respectively. Still, this loss warranted a downgrade of the strategy's People rating to Average from Above Average and contributed to an Analyst Rating downshift to Neutral from Bronze.   

As we highlighted in a recent Fund Spy, two manager changes are on the horizon: T. Rowe Price Mid-Cap Value (TRMCX) and Vanguard International Growth (VWILX) face prominent manager departures in 2022.