Evaluating Fund Management

By studying the track records of funds in the categories you’re interested in, you can identify a handful of strong candidates to focus on even more closely. The next step is to examine the management of those funds, looking for signs of strength and weakness that may guide an investment decision. Several firms, including Morningstar, Value Line, Lipper Analytical, and Wiesenberger, specialize in monitoring and tracking mutual funds and publishing reports on their findings. Most public libraries subscribe to at least one of the information services offered by these firms, and with the help of a librarian you can locate a wealth of information on the management styles and strengths of most mutual funds. Below are some of the questions to ask about any fund that you are seriously considering buying. Information services like those provided by Morningstar, Value Line, and so on can provide the answers.
Who is the fund manager? How long has he or she managed the fund? How does the growth record of the fund under his or her management compare to that of other funds? In general, you want the manager to have a record of at least five years with the fund company, preferably ten or more. If the manager has only been with the firm for two years, his track record is too short to be truly meaningful; any success the fund is currently enjoying may be due more to the efforts of his predecessor.
Information about fund managers often is readily available in the financial press. A few superstar fund managers, such as Mark Mobius, the international investment guru of the Templeton Funds, are almost as widely covered in the media as top basketball players or movie stars. Check online or in any index of newspapers and magazines (available at your local library) for articles about or interviews with the managers of the funds you are considering. You may be able to locate one or more profiles in which the fund manager offers his investment philosophy, explains his successes and failures, and indicates some of his strategies for the months and years to come.
Do the investments currently held by the fund match the fund’s stated objectives?
Fund management may not exactly match an advertised description. Some funds touted in advertising as low-risk or conservative investments actually include derivatives and other risky holdings in their portfolios.