When Less Is More (What Is The Value Of A Mutual Fund Manager's Tenure?)

Overview: What is the value of a mutual fund manager's tenure? Do they improve with experience or are they merely an expensive adornment? In short, does a fund manager with more time at the helm "manage" a portfolio any differently than a manager new to a fund? Article provides the explanation of these questions. It states that 208 domestic equity mutual funds with 75% of their portfolios committed to stock and which are in existence were analyzed. The funds in the sample were large cap funds and had the S&P 500 as their best-fit index. The six S&P 500 index funds, which met the same basic criteria, were culled out of the sample and analyzed separately. The 208 funds were ranked from high to low based upon length of managerial tenure and then grouped into quartiles of 52 funds each. Quartile averages for a number of fund characteristics were then computed. The first quartile represents the funds whose managers have the most tenure, while the 4th quartile represents those funds having managers with the least amount of tenure. With the help of tables, it states that funds with the most managerial tenure (1st quartile) had the highest average annual return over the ten-year period, suggesting that managerial tenure does add value. There are two perspectives regarding the linkage between managerial tenure and fund performance. Stability at the helm produces better performance -- or -- mutual fund managers, which produce good results, keep their jobs longer. It is somewhat of a chicken and egg question. Regardless, it is clear that funds, which are guided by managers with more tenure, have some beneficial characteristics compared to funds guided by managers with very little tenure.

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Format: HTML | Date: Jan 2003 | Pages: 1