Do Managers of 50 Top Funds Buy What They're Selling?

One of the best data points on mutual funds is manager ownership of fund shares. Fund companies have to report to the SEC annually how much managers have invested in their funds.

The report is in the pithily named Statement of Additional Information, or form 485bpos. There, the manager's investments are published in ranges with a maximum level of more than $1 million. That maximum level is too low, as many managers earn in the $5 million to $20 million range, but it's still helpful in understanding which managers really believe in their funds.

Fully 4,347 funds out of about 6,557 have at least one manager who isn't investing in the fund. And of the 1,126 funds where there is just one manager, there is no manager ownership. On the plus side, 564 funds have at least one manager with more than $1 million at stake in the fund they run.

I took a look at the 50 largest actively managed funds to shed further light on how well the fund industry has aligned its interests with shareholders'. This is a group where nearly all the funds are core, managers are generally well-compensated, and most managers are quite experienced. In short, there are very few funds in this group with a good excuse for managers not meeting the $1 million and over mark.

Managers Buy In
Overall, the results are encouraging. Fully 39 of the 50 report at least one manager who has topped the $1 million mark. While I can find a lot of fund companies and managers falling short when I move down to smaller funds, top managers really do buy in.

In fact, all of the 19 largest funds have managers with investments greater than $1 million. Among the most impressive were  Dodge & Cox Stock (DODGX), where seven managers have more than $1 million invested, and  American Funds Growth Fund of America (AGTHX), where six managers have more than $1 million in their fund.

Reviewing the Exceptions
Let's take a look at the funds that fell short of a $1 million manager investment.

At  Vanguard Short-Term Investment Grade (VFSTX), manager Greg Nassour does not have any money at stake in the fund. He has a couple of possible excuses. First, he started on the fund in May 2008 and the fund's report was from January 2010, so he didn't have long to get invested. Second it isn't a core fund, so I can understand why he doesn't have $1 million in it. Vanguard incentivizes all of its employees to cut fund costs, so his interests in fund expenses have already been aligned with shareholders'. Of course, it would be nice to see some investment.

 Vanguard GNMA's (VFIIX) Michael Garrett had between $10,001 and $100,000 as of Jan. 31, 2010--four months before Garrett was named manager on the fund, though it was his second stint there.

 Vanguard Inflation-Protected Securities (VIPSX) comanager John Hollyer has between $100,001 and $500,000 in the fund. That's a respectable sum. It's probably not a coincidence that many of the managers who didn't hit the $1 million mark run bond funds, as they tend to run more funds than the stock managers.

Vanguard Intermediate-Term Tax Exempt manager Michael Kobs was only on the job for a year when the fund reported he did not have an investment in it. That's a bit disappointing, though, if he lives in Pennsylvania, it probably makes more sense for him to own  Vanguard PA Long-Term Tax-Exempt (VPAIX).He's not a manager of that one, though, so I don't know if he owns it.

 Ivy Asset Strategy (WASAX) comanagers Michael Avery and Ryan Caldwell have $500,001 to $1 million and $10,000 to $50,000, respectively, in their fund. However, the report also says that Avery has more than $1 million across the complex and Caldwell has between $500,000 and $1 million of deferred compensation in the fund.

At  PIMCO CommodityRealReturn Strategy , Mihir Worah has $50,000 to $100,000 invested in the fund. It's a bit of niche fund so I can understand, but it still seems a tad low--especially given PIMCO's reputation for generous compensation packages.

One of the bigger surprises is  Fidelity Magellan (FMAGX), where Harry Lange has between $500,001 and $1 million invested. No real excuses there.

At  Oppenheimer Developing Markets (ODMAX), Justin Leverenz has $100,001 to $500,000 invested. That's fairly low for an experienced fund manager.

Bill Gross doesn't have any money in  PIMCO Low Duration (PTLDX). In fact, the most recent SAI from PIMCO indicates he doesn't own any of his funds other than  PIMCO Total Return (PTTRX). On the plus side, he probably owns one heck of a lot of PIMCO Total Return.

Ford O'Neil and Jeffrey Moore didn't own Fidelity Series Investment Grade Bond  two years into their tenure. Because this is a feeder fund for their target date lineup, I'm not sure it's possible for them to own any shares. Moreover, they both have invested between $100,000 and $500,000 in other fairly similar funds where they have longer tenure.

Finally,  Fidelity Puritan (FPURX) managers George Fisher and Ramin Arani have rather small investments in the fund: $50,001 to $100,000 and $10,001 to $50,000, respectively.

Where to Find the Data
In a fund's data page on Morningstar.com, you can select filings and then chose the most recent SAI. Some SAIs have links to ownership or securities ownership, which may get you closer to the information in the filing. It's usually after a discussion of fund directors and the managers' assets under management.

To see the highest manager investment level, you can plug in a ticker in the Fund Spy selector. 

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