How Do You Know If Your Fund Manager Is Good?
Investors who own mutual funds generally have the advantage of the services of a mutual fund manager who is qualified and experienced in choosing hopefully profitable investments. That being said, investors are using the services of such an individual, or group of individuals, and should be informed about his background and his abilities before making an investment.
Once a shareholder chooses a mutual fund, he essentially hired the fund manager to work for him. Although it is common for there to be one fund manager, some mutual funds have several managers that may work together and other funds may have various managers, each one working on his own with a different group of the funds.
It is important that the fund manager have adequate experience because he his handling a lot of money belonging to a lot of people. Typically, investors look to see how long a manager has been with a fund but in reality, the amount of years spent with a fund is no indication of performance and ability. "Old" managers have led a fund to terrible losses and "new" managers have been very successful and earned large amounts of profits. That being said, it is still important for the manager to have sufficient experience and ability. Tracking or investigating the performance
of a manager who may have worked for another fund previously can give insight into his management and investing skills. Compare his work to that of other managers, look at his performance during profitable and not so profitable years, and try to see if he has had many successes or just one or two. Look at his history in entirety, as much as possible, and see if he is skillful and qualified or if he benefited from a good market. Sometimes, mutual funds themselves are successful without owing any of its profits to
the decisions of the manager. Investors should be aware and knowledgeable. Don't go into anything blindly.
Another important issue is to make sure that the fund manager is doing what he has been assigned to do. More specifically, if a large cap fund is purchasing small stocks and investments, it is not doing what it was assigned or chosen to do. If a mutual fund is supposed to be conservative and the manager is choosing risky stocks in which to invest, he is not performing his job properly. Although these skills may be appropriate for other funds, investors want their fund managers to do what they were hired and what they are expected to do. Interestingly, the Securities and Exchange
Committee has passed a regulation that all mutual fund managers are required by law to reveal their rights and investments in the fund that they are directing. This allows shareholders to see truthfully how loyal the fund manager actually is. If he has nothing invested in his decisions, he will not be as careful and will not put as much effort and care into his work as if his own money is at stake. Being invested in the particular mutual fund that he is managing will put him in the same boat as the other shareholders
and he will have increased loyalty and a vested interest in earning as much money as possible.
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