Choosing the Best Fund Managers - Part II

Let's continue David Judice's concepts on selecting funds for investors from the Fourth Annual Manager Search and Selection Conference hosted by NYSSA.  In the first article, we concentrated on picking the best investments and listed the factors analyzed.  Now, let's review the reasons for removing an investment from a mutual fund.  They may originate from the investor or manager side.

From the investor:

• Re-balancing portfolio
• Change in market conditions cause a change in tactical asset allocation
• Change in investment policy statement (i.e. investor's goals or risk tolerance)
• Opportunity cost (Is there a better investment to fit investor's goals?)

From the manager:

• Unexplainable and poor returns.  Every manager will have three year periods of underperformance.
• Returns,  high or low, that do not fit expectations.  This may mean the manager, investment process or risk profile of the fund has changed.
• Key investment personnel leaving
• Firm is giving less transparency, access or client service
• An unprecedented, large loss
• Having liquidity or capacity (i.e. fund has too much assets under management) issues
• Trading execution issues
• Taking on too many investment styles

The manager selection process usually results in buying market indices plus 1-2 active managers to outperform the benchmarks.

Many thanks to David, Citi and NYSSA.  This was a fantastic presentation.