How Much Is Your Manager Really Running?
Get the lowdown on a fund manager's total workload.
Recent changes in mutual fund regulations have brought a lot of valuable information into the light. Unfortunately, some of it is kind of hard for the average investor to find. Still, if you're willing to do a little work, you can unearth some good nuggets.
A case in point is the new requirement that fund companies disclose how much a portfolio manager is running not just in that mutual fund, but in other accounts as well. This helps you get a handle on how much money this person is truly managing and whether the size of that asset base could be a problem. Sometimes a fund looks like its small asset base affords the manager a world of flexibility, when in fact that person is running 10 times that amount when separate accounts are included.
Where to Dig for Valuable Information
The new figures are included in the statement of additional information (SAI), which also goes by the form number 485BPOS. Many fund companies have these filings available on their Web sites. If you can't find it there, you can either search the Security and Exchange Commission's EDGAR database or call the fund company and ask them to send you a copy of the SAI. The information is in the management section under the heading "Other Funds Managed." The SAI also tells you how much the manager has invested in the fund, so it's worth the effort to track down.
When does asset bloat start to become a problem? One benchmark you could use is the median point at which similar funds have closed. I wrote about the topic in a previous Fund Spy.
Managers with Many Irons in the Fire
One of the more impressive statements I've seen is in PIMCO's latest filings, which reveal that Bill Gross runs $130 billion in registered investment companies, $6 billion in other pooled investment vehicles, and $21 billion in other accounts. All told, he manages about $157 billion. The good news is that he invests that money in investment-grade bonds, which is the largest market in the world. The bad news is that such a large sum means that PIMCO's analysts aren't able to add much value through individual bond selection. Instead, it has to come from Gross and company's asset selection and yield-curve positioning. Fortunately, they are quite good at that.
The most interesting reports, though, are for small-cap managers where asset bloat is obviously a concern. For example, our expert on Royce funds, analyst Todd Trubey, argues that the key measurement at Royce is how much each manager is running because analyst support is moderate and most managers are running multiple funds. Chuck Royce oversees $15 billion, while Whitney George oversees nearly $10 billion. However, the two are comanagers on some funds, so both figures are overstated a little because neither is running a sum that large on their own.
Charlie Dreifus' fund, Royce Special Equity (RYSEX), closed early, and he's running less than $2 billion. Thus, his fund's prospects may be the brightest. That's not to suggest that Chuck Royce's funds are going to blow up. He runs a low-turnover value style that can handle a fair amount of assets. But still, $15 billion is getting up there.
How About a Little Visibility?
As a next step in enlightening fundholders, the SEC ought to consider pulling out key information such as other funds managed and dollar investments in the funds and putting this data front and center in shareholder communications so that investors don't have to do so much legwork to find this information.
Russel Kinnel has a position in the following securities mentioned above: RYSEX. Find out about Morningstar’s editorial policies.