3 Top Funds Losing Their Managers

Susan Dziubinski: Hi, I'm Susan Dziubinski with Morningstar. Several high-profile fund manager changes have been announced during the past several months. Here with me today to talk about three of those changes is Russ Kinnel. Russ is Morningstar's director of manager research and editor of Morningstar FundInvestor.

Nice to see you, Russ.

Russ Kinnel: Hi, Susan.

Dziubinski: How do our fund analysts assess a fund manager change, and what impact could a fund manager change have on our fund analyst ratings?

Kinnel: Every manager change in some ways is different. But what we're really getting at is who is taking over, do they have experience, how deep is the team, do we expect them to make changes, do they have a track record? If they have a track record, is that in a similar strategy? We're looking at all those factors to assess is this still as good a fund as it used to be? Or maybe every once in a while it's actually an upgrade, but that's less common. We think managers are really important part of the process. And so, every situation is different. Sometimes a transition is very jarring, sometimes it's very well planned. Really, each case is different. Sometimes we'll downgrade a fund, sometimes we'll maintain that rating.

Dziubinski: As a rule of thumb then, an investor shouldn't necessarily be alarmed if he or she finds out that their fund manager is changing, right?

Kinnel: Not at all. I do think it's something that you want to keep on top of. If you've got actively managed funds, that's part of the task of owning those funds, is keeping on top of them, monitoring that change, and ideally, even having some notes as to how important that manager is for buying it. But you definitely want to look. Obviously, you can look at our analysis and see our take. But I don't think you necessarily simply want to sell just because the manager is changing.

Dziubinski: Let's take a look at a few manager changes that have been announced recently. The first up would be one of the comanagers at Oakmark Select is planning to retire this summer. Talk a little bit about that one and the magnitude there.

Kinnel: Win Murray is retiring from Oakmark Select this summer, but Bill Nygren, the lead manager, and Tony Coniaris, an associate manager, are still there. So, that's not changing our High People Pillar rating or our overall rating. We think it's meaningful, but Nygren is still very much there, and so we still have a lot of faith as well as in the comanager Tony Coniaris. And it is worth noting, though, that Nygren is not that far from retirement age. So, it's something we're going to continue to watch. But his retirement is not imminent, and we feel really good about the people who are still there at the time.

Dziubinski: Also, this summer, we're seeing a retirement from Vanguard Wellesley Income. Michael Reckmeyer, who is the lead equity manager on that fund, is going to retire. What about that one?

Kinnel: That's right. Michael Reckmeyer of Wellington is going to retire. Matthew Hand is going to take his place, and this is on the equity part of Vanguard Wellesley. And so, they both work for Wellington, and Hand has been working on the fund for a long time. So, we feel pretty good about that transition, but it's still a pretty important one that we'll want to watch closely. Now, because it's Vanguard and Wellington, we have a fair amount of confidence that there's not going to be a meaningful strategy shift. But will execution be as good? We'll be watching closely.

Dziubinski: And then, lastly, this was pretty big news toward the end of 2021. Fidelity announced that Joel Tillinghast will be leaving Fidelity Low-Priced Stock at the end of 2023. And again, this one seems a little bit more significant, no?

Kinnel: This one is huge because I think you really have a singular talent of Joel Tillinghast that has kept Fidelity Low-Priced Stock performing brilliantly even though it's a very large fund with a very big portfolio trying to invest primarily in small- and mid-cap names. It's a really difficult thing to do for single manager. And Tillinghast is a really unique talent. The good thing is that transition is obviously a very gradual one. We're talking about end of 2023. But even so, because our rating is a forward-looking rating, we've lowered the fund one notch to Bronze. That's not a big knock on the replacement managers, Sam Chamovitz and Morgen Peck. It's more that there's only one Tillinghast, and the people replacing him have experience, but we don't have a lot of a track record for them. And again, this is a really unusual fund, a very challenging assignment to run so much money in small- and mid-cap stocks, so it's definitely something to watch closely. I think this is just one of those funds where the identity is uniquely tied up to the manager, and so definitely something to watch in 2023 and 2024.

Dziubinski: Well, Russ, thank you for your time today and for putting some of these pretty high-profile fund manager changes into perspective. We appreciate it.

Kinnel: You're welcome.

Dziubinski: I'm Susan Dziubinski with Morningstar. Thanks for tuning in.