Morningstar Warns Against Overreacting to Fund Manager Changes

A recent study conducted by Morningstar that analyzed returns from actively managed stock and bond funds between 2003 and 2016 found “no relationship between any type of management change and future returns,” according to an article in InvestmentNews.

Although management changes get a lot of attention in the media and the investment community (the article cites the example of Bill Gross’s departure from PIMCO in 2014), the study concluded that their occurrence has little if any effect on performance due to the following factors:

  • Seventy-five percent of all actively managed funds are team-managed—”it can generally be assumed that the manager has a team of analysts behind her,” says Morningstar quantitative analyst Madison Sargis.
  • Most funds follow a mandate set out by the management company. Sargis says, “It would be surprising if the fund remade its portfolio wholesale after a departure.”
  • “Funds have gotten much better at succession planning.” The article points out that, in the 1970s and 1980s, funds were built around such legends as Fidelity’s Peter Lynch and Vanguard’s John Neff. Sargis argues, “If the fund’s pipeline [for new managers] is good, they will train employees in the same way, ensuring continuous continuity in performance.”

Sargis’s advice to advisers: “Be calm and wait, rather than acting hastily.”