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One of the key pieces to Morningstar’s Parent Pillar
ratings and Stewardship Grades is a firm’s Corporate
Culture. We favor asset-management companies
that show evidence of putting their fundholders’ inter-
ests ahead of their own and that can build invest-
ment departments more likely to produce good long-
term results for generations to come.
Although our Corporate Culture assessments depend
largely on qualitative judgments, in
2011
we devel-
oped several firmwide data points to help our analysts
inform and support their evaluations of investment
firms. In
2014
and in
2015
, we studied those data
points to determine whether firms that exhibited
stronger stewardship metrics also produced better
results. To gauge a firm’s success, we calculated
its success rate and risk-adjusted success rate. The
success rate tells what percentage of a company’s
mutual funds both survived and outperformed its
respective category median funds over certain
time periods.
Overall, we found in both studies that better steward-
ship measures corresponded with better results,
particularly over the longer term and often more so on
a risk-adjusted basis. Here, I’ll share the portion
of the
2015
study that considered manager retention.
High Manager-Retention Rates Signal Firm
Stability Overall
Manager-retention rates show investors how well
asset-management firms keep their mutual fund
portfolio managers. The rates measure what
percentage of a firm’s portfolio managers remained
with a firm as a portfolio manager, even if their
management assignments changed among a firm’s
funds. Morningstar calculates this figure for firms
annually and also determines a five-year average.
A lower number suggests more churn in the fund-
manager ranks, though some managers who have
been removed from a firm’s mutual funds may still
work at the company in another capacity, such as a
senior management role or a manager of non-mutual-
fund strategies.
Manager-retention rates provide insight into a firm’s
corporate culture. Strong corporate cultures are able
to both attract and nurture investment talent and
to foster an environment that’s supportive of portfolio-
management careers at the firm. We consider this
retention figure alongside our knowledge about invest-
ment professionals’ careers at each company to
help make a qualitative assessment of a fund firm’s
corporate culture.
Our
2015
study found that about a third of fund
companies have had no manager turnover during the
past five years. Overall, most firms are stable, with
Why Manager Retention Matters
Morningstar Research
|
Bridget B. Hughes
Better Stewards Have Better Results
Name
Steward-
ship
Grade
Firm Manager-
Retention
Rate, 5 Year%
Firm Avg
Manager
Tenure,Years
Firm Asset-
Weighted
Manager
Tenure,Years
Firm Success
Rate,
10 Year
Firm Risk-
Adjusted
Success Rate,
10 Year
Dodge & Cox
Z
96.7
21.1
25.8
100
50
American Funds
Z
95.5
11.8
21.1
62
67
T. Rowe Price
Z
94.4
7.7
11.3
81
79
Vanguard
Z
92.8
7.6
12.0
77
78
DFA
Z
91.6
7.9
9.4
77
61
Franklin Templeton
X
95.8
14.1
15.5
37
36
JPMorgan
X
95.1
7.3
11.3
43
40
MFS
X
94.4
10.0
11.5
41
43
Fidelity
X
92.1
5.5
9.2
46
33
Lord Abbett
X
90.2
7.3
9.7
41
39
Janus
C
93.1
5.7
6.8
34
36
Wells Fargo
C
92.7
9.2
10.2
31
28
American Century
C
92.7
8.1
11.2
37
36
Oppenheimer
C
90.7
7.1
9.6
28
29
John Hancock
C
90.6
6.2
8.0
19
15
PIMCO
C
90.1
3.3
4.7
63
52
BlackRock
C
88.1
5.3
11.6
30
28
Columbia
C
86.8
7.2
9.3
18
17
Invesco
C
84.2
6.7
11.3
25
27
Principal
C
80.3
5.2
7.6
31
33
Industry Average
93.68
6.9
8.1
33
33
Data as of May 31, 2015.