Fund Managers Who Eat Their Own Cooking
According to fund tracker Morningstar, funds that have a significant amount invested in the portfolio from their manager’s pockets are likely to perform better. The Securities and Exchange Commission (SEC) made it compulsory since 2005 for fund companies to disclose their manager ownership. Using this data, Morningstar’s director of manager research Russel Kinnel compared funds and the degree of manager ownership against their performance in terms of benchmark returns between 2009 and 2014. The study concluded that 47% of funds having over $1 million of the fund manager’s personal money invested in the fund, outperformed benchmarks. The 47% figure is significant, as Kinnel says that nearly one-third of companies had either merged or shut down in the five-year timeframe. Meanwhile, 35% of funds that had no investment from their managers were able to beat their benchmarks. Fund Performance Based on Categories The performance difference is however not uniform for all category of funds. The most prominent difference was observed in U.S. and international stocks and Balanced funds. On the other hand, the ownership factor makes less impact on sector and taxable-bond funds’ performances. Among them, balanced funds showed the biggest difference in performance. As against a 32% success rate for Balanced funds with no investment from managers, 85% funds beat their benchmarks which have over $1 million investment from their managers. International funds having over $1 million managers’ money invested saw a 68% success rate, while those without managers’ personal wealth had a success rate of 32%. For U.S. stock funds, the success rate for funds with over $1 million of managers’ personal money was at 39%. Funds with no such investment from managers clocked a 29% success rate. However, sector funds showcase a less significant impact. Managers’ investment in sector funds helped 40% outperform, while 39% with no investment from managers outperformed benchmarks. Also for taxable-bond funds, 42% funds with manager investment beat benchmarks, while 38% funds with no manager money invested were able to succeed. Funds with Manager Investment Morningstar notes that 5,364 managers have no investment in their funds, while 2,659 have less than $100,000 invested. The number of fund managers who have over $1 million invested in their portfolios is just over 1,000. The list mentioned by Morningstar includes funds like the Artisan International Fund (MUTF: ARTIX ), which has total assets of $20.17 billion. This Zacks Mutual Fund Rank #2 (Buy) has 3 and 5 year annualized returns of 15.7% and 13.9%. The Oakmark Global I Fund (MUTF: OAKGX ), with total assets of $3.57 billion also features in the list. OAKGX has 3 and 5 year annualized returns of 18.8% and 13.4%. However, it currently has a Zacks Mutual Fund Rank #5 (Strong Sell). On the other hand, Zacks Mutual Fund Rank #1 (Strong Buy) fund Oppenheimer Global Fund A (MUTF: OPPAX ) is one such funds with manager investment over $1 million. OPPAX has total assets of $10.76 billion and its 3 and 5 year annualized returns stand at 19.2% and 14.3%. The Meridian Growth Fund (MUTF: MERDX ) saw investments from managers Chad Meade and Brian Schaub within a year they took over the fund. MERDX’s 3 and 5 year annualized returns are 15.6% and 16.6% and it carries a Zacks Mutual Fund Rank #3 (Hold). Similarly, Mihir Worah and Scott Mather also invested $1 million each after taking over the popular PIMCO Total Return Fund A (MUTF: PTTAX ) from bond investor extraordinaire William Hunt “Bill” Gross. PTTAX currently holds a Zacks Mutual Fund Rank #2. Interestingly on the other hand, Bill Gross, who had quit PIMCO in a shocking move to join Janus Capital Group (NYSE: JNS ), was reported to have invested $700 million from his own pocket in the Janus Global Unconstrained Bond fund. Should You be Interested in Such Funds? Managers who “eat their own cooking” helps in building confidence. Personal ownership in the portfolio means the managers’ money is also at stake along with investors’ money. However, this factor is limited to building confidence and acts only as a positive indicator. Investing in a fund based on if managers are investing should not be driving investment decisions. However, a fund’s fundamentals, historic and potential performance strength among other factors should also be considered. Low cost structure of the fund is also a key criterion. Investors may also look for a favorable manager rating. The mutual funds listed below carry either a Zacks Mutual Fund Rank #1 (Strong Buy) or Zacks Mutual Fund Rank #2 (Buy) as we expect the funds to outperform its peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but the likely future success of the fund. They also have encouraging year-to-date and 3 and 5-year annualized returns. These funds have a high manager rating . It measures the risk-adjusted performance of a fund’s management relative to the fund’s peer group. The minimum initial investment is within $5000. T. Rowe Price Health Sciences Fund (MUTF: PRHSX ) invests a lion’s share of its net assets in common stocks of companies engaged in the research, development, production, or distribution of products or services related to health care, medicine, or the life sciences. PRHSX may invest in companies of any size, the majority of fund assets are invested in large and mid capitalization companies. PRHSX currently carries a Zacks Mutual Fund Rank #2 and has gained 19.7% year to date. The 3 and 5 year annualized gains are 38.4% and 31.8%, respectively. The manager rating is 19.2. Janus Global Life Sciences Fund A (MUTF: JFNAX ) invests a large portion of its assets in companies that have a life science orientation. JFNAX generally invests a minimum 25% of its assets in companies that are part of the “life sciences” sector. JFNAX currently carries a Zacks Mutual Fund Rank #1 and has gained 18.2% year to date. The 3 and 5 year annualized gains are 39.9% and 30%, respectively. The manager rating is 13.3. Diamond Hill Select Fund A (MUTF: DHTAX ) seeks to provide capital growth over the long term. DHTAX invests in 30-40 US equities which the Adviser believes are undervalued. These equity securities may be of any size. The adviser estimates a company’s value devoid of its market price and also takes into effect the industry competition, regulatory factors and various industry factors among others. DHTAX currently carries a Zacks Mutual Fund Rank #1 and has gained 8.9% year to date. The 3 and 5 year annualized gains are 24.1% and 16.2%, respectively. The manager rating is 7.8. Originally posted on Zacks.com