11
Morningstar FundInvestor
August 2
014
Know what you own. It’s one of the first lessons of
investing. It follows that you shouldn’t just buy a
fund’s track record. Before investing, you should make
sure the manager or managers who own those
results are still on the job. Here are some funds with
decent past performance and recent inflows but
managers who haven’t been around for very long. Are
new investors getting what they expect from these
funds? We shall see.
Vanguard Precious Metals and Mining
’s
VGPMX
unique approach gives it an attractive risk profile in
the volatile equity precious-metals category. That has
drawn investors after three harrowing calendar years.
The fund has seen slightly positive flows this year—
$64
million—after bleeding
$209
million in the three-
year period ended in June. Investors buying now,
however, should realize the manager who built much
of the fund’s long-term record, Graham French, is
gone and lead portfolio manager Randeep Somel has
been on the job for only a year. Furthermore, Jamie
Horvat, who joined him as a listed manager in early
2014
, has been with subadvisor M
&
G for about a
year. Somel worked with French for about eight years,
and Horvat arrived from another precious-metals
boutique. The fund also continues to define its invest-
ment universe more broadly than peers, including
a wider variety of metals and materials stocks. The
fund still gets a Morningstar Analyst Rating of
Neutral because of the recent manager changes.
As of mid-
2014
,
Ivy High Income
WHIAX
was still
raking in the inflows even though much of the
management team responsible for its strong histo-
rical results are gone. The fund, whose one-, three-,
five-, and
10
-year trailing returns are each in the top
fourth of the high-yield category, had attracted more
than
$1
billion in inflows this year through June
30
.
However, we rate it Neutral because the fund has had
two manager changes in less than a year. Advisor
Waddell
&
Reed fired manager William Nelson,
who had been with the firm for nearly
20
years, for
reasons unrelated to portfolio management in
July. The action came just eight months after Nelson
replaced former lead manager Bryan Krug when
he left for Artisan Partners in November
2013
. Chad
Gunther, an
11
-year veteran at Waddell
&
Reed
who was previously an assistant manager of the fund,
has stepped up and is familiar with the fund’s pro-
cess, but that’s a lot of change for a hot-performing,
now nearly
$12
billion fund in a frothy asset class
that already had thin analytical support. Color us wary.
T. Rowe Price Global Technology
PRGTX
has
steadily gathered assets in recent years and put up
respectable results while seeing a lot of manager
changes. Joshua Spencer has run the fund for about
two years. He replaced David Eiswert in
2012
, who
replaced Jeff Rottinghaus in October
2008
, who had
himself replaced Robert Gensler in
2006
. Like his
predecessors, Spencer came from T. Rowe’s analyst
staff, where he covered technology stocks. Indeed,
you have to have a lot of confidence in T. Rowe’s
analysts to invest here because every couple of years
a new one has been allowed to run it. Returns have
held up through all the changes; results remain in or
near the peer group’s top decile over all trailing
periods. But this fund, with its fairly concentrated port-
folio that keeps
47%
of assets in its top
10
and a
nearly
30%
stake in overseas stocks, is not exactly an
easy fund to run. It would be easier to believe in
it if a more experienced hand were at the helm.
œ
Contact Dan Culloton at
Have Investors Noticed These
Manager Changes?
Red Flags
|
Dan Culloton
What is Red Flags?
Red Flags is designed to alert
you to funds’ hidden risks. Such
risks can take many forms,
including asset bloat, the depar-
ture of a solid manager, or a
focus on an overhyped asset
class. Not every fund featured in
Red Flags is a sell, and in fact,
some are good long-term hold-
ings. But investors should be
prepared for a potentially bum-
pier ride in the near future.
New Managers’ Big Inflows
Name
Net Flow 1 Yr ($) Net Flow YTD ($)
Manager
Tenure (Yr)
Morningstar
Analyst Rating
Ivy High Income WHIAX
3,002,481,931 1,176,505,026
0.08
Ø
T. Rowe Price Global Technology PRGTX
158,561,696 96,698,677
2.17
Vanguard Precious Metals and Mining VGPMX
82,116,421
64,461,860
0.88
‰
