Making Sense of the Biggest Manager Changes So Far in 2006

One of the toughest challenges facing fund investors is deciding what to do when a fund changes managers. There are so many questions about whether the strategy will change and how good the new manager is.

In fact, just keeping track of the manager changes is rather daunting. That's why I provide brief capsules of key changes in each issue of Morningstar FundInvestor. I describe the change, the date of the change, my take, and I even give a one-word assessment--negative, neutral, or positive--of the impact of the change.

Here, I've excerpted my take from past issues on the biggest manager changes to hit so far in 2006.

 Clipper Fund (CFIMX) Impact: Positive 01-01-06
When this fund's former management team resigned, the fund's board hired Chris Davis and Ken Feinberg of Selected American (SLASX). The fund's expense ratio is coming down by 50 basis points because Davis and Feinberg's management fee is half that of the old Clipper team. Like the previous team, the new managers will own about 15-20 stocks here, but they won't move into cash and bonds the way the former team did.

My Take: This is great news. You get low costs, outstanding managers, and a board that has done the right thing for shareholders.

 Fidelity Overseas (FOSFX) Impact: Positive 01-01-06
Rick Mace was replaced by Ian Hart, former manager of Fidelity Europe Capital Appreciation .

My Take: Mace's record was mediocre, while Hart's five-year performance at Europe Capital Appreciation has been quite strong. Thus, we're more optimistic about this fund's prospects than we've been in a long time.

 Janus Fund  Impact: Positive 02-01-06
 Janus Mercury (JAMRX) manager David Corkins took over the struggling flagship fund, and former manager Blaine Rollins moved down to run the tiny Janus Triton (JATTX) (before eventually retiring).

My Take: Corkins is Janus' top manager, so this is a big upgrade. His success at Janus Growth & Income (JAGIX) and Mercury give us confidence.

 Vanguard Windsor II (VWNFX) Impact: Neutral 01-04-06
Vanguard added advisor Armstrong Shaw Associates to the lineup of Barrow, Hanley, Mewhinney & Strauss, Equinox Capital Management, Hotchkis and Wiley Capital Management, Tukman Capital Management, and Vanguard. Armstrong Shaw has a good record running large-value separate accounts and also has done a nice job at Harbor Large Cap Value H . |

My Take: Armstrong Shaw is a good shop, and its disciplined, low-turnover value approach should fit in well at Windsor II.

 Fidelity New Millennium (FMILX) Impact: Negative 07-01-06
Neal Miller retired and was replaced by John Roth, who has served as an analyst at Fidelity. 

My Take: Neal Miller was one of the best managers around, whereas Roth is unproven. Fidelity must think highly of Roth to put him at this fund, but he has big shoes to fill and won't likely even attempt to run Miller's eclectic strategy.

 T. Rowe Price Global Technology (PRGTX) Impact: Negative 04-01-06
Manager Rob Gensler stepped down to focus on T. Rowe Price Global Stock (PRGSX). Jeffrey Rottinghaus, who has a little less than one year of experience running a fund (T. Rowe Price Developing Technology  ), has taken over. 

My Take: Rottinghaus may prove to be a good manager, but we knew for certain that Gensler was. We've taken this fund off of our Analyst Picks list.

 Janus Mercury (JAMRX) Impact: Negative 02-01-06
Corkins has moved to Janus Fund, so this fund is being run by Janus' analyst staff in a fashion similar to Janus Research (JARFX).

My Take: It's a big letdown to go from the shop's best manager to a collection of analysts. While Janus has some good analysts, we think Corkins was adding value. Thus, the fund has lost a fair amount of appeal.

 Fidelity Small Cap Value (FCPVX) Impact: Negative 03-05-06
Kathy Lieberman has left the firm and has been replaced by Thomas Hense. Hense joined Fidelity as a high-income analyst in 1993 and became director of high-income research in 1999. In 2000, he joined Fidelity's equity division and soon after became codirector of equity research. Hense has also managed small-cap-oriented institutional accounts for the firm since 2004. 

My Take: Lieberman had produced good results here and was regarded within Fidelity as a rising star, so this is a real blow. On the plus side, Hense is a more seasoned investor than you typically get taking over a smallish Fidelity fund.

Poll Results: Danoff Wins
Last week, I asked whom you would like to see win Manager of the Year. Here's how you voted:

18% - Bruce Berkowitz and Larry Pitkowsky
44% - Will Danoff
2% - Arup Datta
7% - Mason Hawkins and Staley Cates
8% - David Lee
21% - Ed Owens