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Fund Spy

7 Funds With Big Manager Changes

A shocker from T. Rowe Price.

February is the time for breakups in the fund industry. Every year we see a slew of manager departures. Calendar-year returns are still a big deal, so managers care about their records, and fund companies assess their performance at year-end.

Of course, bonuses are another part of the story. Managers who are moving on to another job want to wait until they've collected their bonuses. Likewise, some managers read the handwriting on the wall when they get smaller bonuses than expected and decide it's time to hit the road.

Here are some key questions that we ask in the process and that investors can apply themselves:

  • How much of the fund's track record does the new manager and others who remain at the fund deserve credit for?
  • How good is the new manager's record at other strategies?
  • How similar are those strategies to this fund's?
  • Will the new manager make changes to the fund's strategy?

Let's take a look at this season's biggest changes.

 T. Rowe Price New Horizons (PRNHX) and  T. Rowe Price Global Technology (PRGTX)
Impact: Negative
Date: March 31, 2019

The biggest one is Henry Ellenbogen's departure from T. Rowe Price New Horizons. It's really rare for T. Rowe Price to lose a star manager in midcareer, but that's happened here. It's particularly challenging as the firm's mid- and large-growth stars are later in their careers and thus may need successors in the next few years, too. To make matters worse, Ellenbogen's associate portfolio manager and two analysts are leaving with him.

Ellenbogen will be replaced by Joshua Spencer, manager of T. Rowe Price Global Technology. Although we think highly of Spencer, his tech fund was a $10 billion fund with a 200% turnover rate compared with $25 billion and a 39% turnover rate at T. Rowe Price New Horizons. Meanwhile, Spencer will be replaced by Alan Tu, who joined the firm as a tech analyst in 2014.

We have downgraded T. Rowe Price New Horizons' Morningstar Analyst Rating to Bronze from Gold. While Spencer has done a fine job at T. Rowe Price Global Technology, this is a big step up in universe and assets under management. We placed that fund's Silver rating under review.

 Diamond Hill Small Cap (DHSCX)
Impact: Neutral
Date: Feb. 1, 2019

Lead manager Tom Schindler has been replaced by Chris Welch and Aaron Monroe. Welch is lead manager on  Diamond Hill Small-Mid Cap (DHMAX)

Diamond Hill has been struggling across the board. This fund stands out, though, because Schindler was inclined to hold a large cash stake, and the fund has done even worse than others at the firm because of the cash stake and poor stock selection. Diamond Hill says it will now pare that cash stake but otherwise maintain the same value strategy. Welch actually produced better performance than Schindler, so this could prove to be a positive. We are maintaining our Silver rating.

 T. Rowe Price High Yield (PRHYX)
Impact: Negative
Date: Jan. 1, 2020

Mark Vaselkiv will step down as lead manager at year-end. Rodney Rayburn was named comanager and successor. Rayburn joined T. Rowe Price in 2014 and has served as portfolio manager of T. Rowe Price Credit Opportunities (TCRRX) since July 2015. Note that this transition has the long lead time that is typical at T. Rowe Price, unlike the transition at T. Rowe Price New Horizons

T. Rowe Price has a deep team of high-yield analysts, which gives us confidence about this fund's future. However, Vaselkiv had an extraordinary record, and Rayburn's is pretty brief. We have downgraded the fund to Bronze from Gold.

 USAA International (USIFX)
Impact: Negative
Date: June 30, 2019

Victory Capital has proposed adding its own managers from RS Investments, Trivalent Solutions, and Victory Solutions after it completes the purchase of USAA. The transaction is expected to close during the second quarter of 2019. Current subadvisors MFS Investment Management, Wellington Management, and Lazard Asset Management are well-regarded. The strategy has delivered solid results since Wellington and Lazard joined MFS as subadvisors in August 2015. 

We are disappointed with the changes and have downgraded the fund to Neutral. It's unclear exactly how shareholders of this fund will benefit from these changes.

 USAA World Growth (USAWX)
Impact: Negative
Date: June 30, 2019

Victory plans to add its own managers from RS Investments and Victory Solutions. MFS Investment Management has been this strategy's sole subadvisor since 2002. 

This is disappointing. MFS has delivered solid results here. The MFS team has talented managers and deep analytical resources, and it employs a sound and proven approach. It seems the investment teams have been added in order to boost the bottom line of Victory rather than that of fundholders. We have downgraded the fund to Neutral from Silver.

 Westwood Income Opportunity (WHGIX)
Impact: Negative
Date: March 8, 2019

Lead manager Mark Freeman is leaving Westwood. The firm considered hiring outside talent to help manage the fund but decided to give the reins to comanagers Daniel Barnes and Todd Williams. It is not apparent if Westwood did so because it was not happy with the results of the search or because it was happy with the comanagers. Each boasts significant investment experience in both equities and fixed income, but Barnes didn't have a public track record prior to joining Westwood in 2014, and Williams has primarily played a supporting role on this fund in recent years. We are maintaining our Neutral rating.


Russel Kinnel has a position in the following securities mentioned above: PRHYX, PRNHX. Find out about Morningstar’s editorial policies.