387 / 708
Fund managers are savvy investors, so why not follow
their lead?
U.S. mutual funds are required to disclose how much
money their managers have invested in their own funds.
Each year, funds file a Statement of Additional Infor-
mation that lists ownership levels in bands that range
from zero to more than
$1
million. As of August
2016
,
1
,
036
funds had at least one manager who invested
more than
$1
million of their own money in their
funds. On the flip side,
3
,
822
funds had no investment
from any of their managers.
The managers know something about their funds, and
it is fair to assume their investment is a useful signal.
In fact, I’ve found manager ownership to be one of the
better predictors of future performance, though
not as good as expense ratios. Manager ownership is
a good indicator, but, as with fees, it alone is not
sufficient to lead me to buy a fund. I still want to know
all the fundamentals and how the fund serves
my portfolio.
The group of funds run by managers investing no
money in their funds had a meager
35%
success rate
over the ensuing five years, those with between
$100
,
001
and
$500
,
000
had a
43%
success rate, and
those with more than
$1
million had a
47%
success
rate. Because about one third of funds were merged
away or liquidated over that five-year stretch, a
47%
success rate is actually quite good. If we look at
a risk-adjusted success rate, the story is fairly similar.
We found a risk-adjusted success rate of
28%
for
managers with no investment compared with
39%
for
those with
$1
million or more.
Looking at asset classes, the trend was pretty consis-
tent. In U.S. equities, funds with no investment
had a dismal
29%
success rate versus
39%
for the top
rung. Coming out of the bear market, attrition was
higher in U.S. equities than in other asset groups. For
international funds, those with zero investment
had a
32%
success rate versus
68%
for those with
more than
$1
million invested. Balanced funds had
a
32%
success rate on the bottom rung versus
85%
on
the top rung.
I’ve gathered ownership data on the Morningstar
500
funds. Let’s take a look at managers who have moved
into the top and bottom tiers of ownership. If you
want to check up on funds not listed here, consult the
Fund Spy Selector on our website: mfi.morningstar.com.
Go to the site, then click on the Fund Spy tab. Then
click on the Spy Selector tab, and enter the ticker for
the fund you want to check. It will tell you the
highest investment level of any manager on the fund.
Managers Buying
Tad Rivelle
TCW Total Return
TGLMX
Manager Tad Rivelle took his investment at this fund
from zero to more than
$1
million. It’s a welcome
sign for this fund, which has a Morningstar Analyst
Rating of Bronze. Comanagers Mitchell Flack and
Bryan Whalen have between
$100
,
000
to
$500
,
000
and
$10
,
000
to
$50
,
000
invested in the fund,
respectively. The trio took over the fund in the wake of
Jeffrey Gundlach’s bitter divorce from
TCW
about
six years ago.
Which Managers
Are Buying and Selling
Their Funds?
Fund Reports
4
Fidelity Puritan
Litman Gregory Masters Intl
Oakmark Global
Vanguard Tax-Managed Balanced
Morningstar Research
8
Flows Are a Good Sign and a
Bad Sign for Funds
The Contrarian
10
Here Come the Load Funds
Red Flags
11
Dividend Appreciation Is
Starting to Look Risky
Market Overview
12
Leaders & Laggards
13
Manager Changes and News
14
Portfolio Matters
16
Being Too Conservative Is a
Big Risk for Retirees
Tracking Morningstar
18
Analyst Ratings
Income Strategist
20
How Bond Funds Are Dealing
With Negative Interest Rates
Changes to the 500
22
FundInvestor 500 Spotlight
23
Follow Russ on Twitter
@RussKinnel
RusselKinnel, Director of
ManagerResearch and Editor
FundInvestor
September 2016
Vol. 25 No. 1
Research and recommendatio s for the s riou fund investo
SM
Continued on Page 2