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Looking at the manager biographies for
American
Century Small Cap Value
ASVIX
, I saw something
odd. Morningstar listed Steven Roth as a manager
from
2006
to
2008
, but his bio supplied by current
employer Dean Capital Management said he was
a manager from
2004
to
2008
. (We’ve corrected that
bio to have the correct dates.)
No doubt Roth’s current employer wants to make him
look experienced to potential investors in
Dean
Small Cap Value
DASCX
. It’s not uncommon in the
fund world for firms to do some spinning of manager
experience. It’s the area investors should
be most skeptical about when it comes to funds.
It’s very hard and very rare for firms to try to lie about
performance or holdings, as they have to report
daily returns and portfolios are held by third-party
custodians and audited by outside auditors. That
makes it quite difficult to do anything deceptive;
these are also areas where the
SEC
will come
down on fund companies like a ton of bricks for any
shenanigans. However, management is more of
a gray area, and the
SEC
has shown little interest in
drawing sharp lines.
Most of the spin comes in comments rather than in
black and white. If a manager leaves a successful
fund, the firm may emphasize how much remaining
team members contributed and how it’s really about
the process. Some may go so far as to say, “Joe
Smith was
really
managing the fund, and Jane Doe
had little to do with it.” Which raises the question,
were they lying before when they said Jane Doe was
manager or are they lying now? On the other hand,
if a fund performed poorly, the firm may try to dump
all the poor performance on the departed manager
even if the new manager was part of the same team.
Another game some fund companies play is keeping
a figurehead manager named to a fund long after
he has stopped having day-to-day management
responsibilities. This move enables management to
lay claim to a longer record and to boost their
statistics for average and median manager tenure.
Franklin Templeton seems inclined to do the latter. It
has listed Rupert Johnson as comanager on
Franklin
DynaTech
FKDNX
since
1968
. Jerry Palmieri
remained a listed manager on
Franklin Growth
FKGRX
from
1965
until his death in April
2014
at the
age of
85
.
There are two checks on fund companies’ attempts to
spin management. The first is that the prospectus
filed each year lists managers. So, fund companies
may try but are usually not successful in backdating
manager tenures because one can go back to the
prospectus and see when a manager was first listed.
Second, the
SEC
states that listed managers
must have day-to-day responsibility for a fund, so
fund companies are not acting in the spirit of the rule
when they include managers who no longer have
day-to-day responsibilities. However, the
SEC
hasn’t gone after any firms for playing fast and loose
with this rule.
We talk with fund managers regularly and save our
notes that show analysts and managers on the
team. These help us to keep fund companies honest.
When analyzing a fund, we base its rating on who
we understand is really running it.
Manager tenure is one thing you don’t want to take
at face value from fund companies, so check a fund’s
Morningstar Analyst Report, particularly around
a manager change when spinning is at its peak.
œ
Where Fund Companies Will Try
to Spin You
The Contrarian
|
Russel Kinnel
Our Contrarian Approach
I go against the grain to
find overlooked funds that may
be ready to rally.