(PUB) Investing 2015

February 2015 Vol. 23 No. 6

FundInvestor Research and recommendatio s for the s riou fund investo

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Manager Investment Brings Better Results

that flowed into Janus Global Unconstrained Bond last year came from the office that manages Gross’ personal portfolio. That’s a great sign that Gross eats his own cooking, but we would not have known the magnitude of his commitment without news reports. Relying on the SEC , we would have known only that Gross, who is worth about $2 billion, has more than $1 million in the fund. If the SEC required the total dollar amount or the number of shares, we’d be able to track investments more precisely. Despite the limited usefulness of the disclosure bands, they may still have predictive power. To test it, I looked at manager investment levels from 2009 and then tracked five-year perfor- mance from that point on. I grouped funds by top manager investment range and then asked what percentage survived and outperformed their category peers. That gave me a success rate. This, in turn, gives us an idea of whether you can improve returns by choosing funds with high manager investment levels. I exclud-ed index funds and funds of funds from the test. We used a single share class per fund. Results It turns out that manager investment does have predictive power. Funds in which managers invested nothing had the lowest success rate, and those in which a manager had more than $1 million invested had the highest success rate. The rate generally progressed higher with manager investment levels. See Table 1 for details. Managers investing no money in their funds had a meager 35% success rate, those with between $100 , 001 and $500 , 000 had a 43% success rate, and those with more than $1 million had a 47% success

RusselKinnel, Director of FundResearch and Editor

Fund Reports

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It pays to invest with managers who invest in their funds.

Akre Focus Dodge & Cox International FMI Large Cap Hennessy Focus Morningstar Research Frontier Markets Begin to Emerge

I’ve suggested this before and now I have more conclu- sive data pointing this way. Last year I looked at the Morningstar 500 funds and found that those in which managers invest more than $1 million produced modestly better performance than the rest of the subset. Now I’ve looked at the broader fund universe and found a strong link. The SEC requires managers to disclose how much they invest in their own funds. Unfortunately, the SEC requires bands rather than actual dollar figures. Those bands are: none, $1 – $10 , 000 , $10 , 001 – $50 , 000 , $50 , 001 – $100 , 000 , $100 , 001 – $500 , 000 , $500 , 001 – $1 million, and over $1 million. You can find this infor- mation in a fund’s Statement of Additional Informa- tion and in the Fund Spy tool, Spy Selector, on mfi.morningstar.com . This is very useful information, though it fails to distinguish among managers with more than $1 million invested. Eventually, Janus Global Unconstrained Bond JUCDX will disclose that new manager Bill Gross has more than $1 million in the fund. That doesn’t tell us much about the percentage of wealth Gross has invested with shareholders, though. Indeed, in January we learned that most of the nearly $1 billion

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The Contrarian

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Where Fund Companies Will Try to Spin You

Red Flags

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Hot Performers With High Price Tags

Market Overview

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Leaders & Laggards

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Manager Changes and News

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Portfolio Matters 16 How to Combat Portfolio Sprawl

Tracking Morningstar

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Analyst Ratings

Income Strategist 20 Energy Sell-Off Spurs Outflows and Bargain-Hunting

FundInvestor 500

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FundInvestor 500 Spotlight

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Follow Russ on Twitter @RussKinnel

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