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Mutual Funds

Managers Who Eat Their Own Cooking

Kudos to the guys at the top who put their own money beside that of shareholders.

Jeff Arricale and David Giroux wanted to show clients they were committed. The duo plowed all their retirement savings into T. Rowe Price Capital Appreciation after they took over the fund's reins last July. "As our shareholders' fortunes rise and fall, ours will as well," Arricale says.

Now you can find out if your funds' managers eat their own cooking. Since 2005, the Securities and Exchange Commission has required funds to report how much managers have invested. The investments are disclosed in broad dollar ranges, from zero to more than $1 million.

There is some debate on the insight investors can glean from the manager-investment data. "It's a pretty strong signal about a manager's own view of a fund," says Russel Kinnel, Morningstar's director of fund research. Most fund companies encourage, but don't require, managers to invest in the funds they run. But sponsors point out that managers have plenty of reasons to do right by shareholders regardless of personal investment. "Our fund managers' compensation is largely driven by fund performance, which is a significant incentive," says Fidelity spokesman Michael Shamrell.

Fair comparisons

To some degree, the importance of a manager's investment depends on the type of fund. A manager will typically make a smaller financial commitment to a fund with a narrow focus, such as a sector fund or a state-specific municipal bond fund. Many managers run numerous funds that are quite similar. And just like you, professional investors need to diversify.


Nearly half of fund managers have a stake in their own funds, according to a recent study of 1,406 funds by researchers at the Georgia Institute of Technology and London Business School. The study found a modest link between manager ownership and future performance. Funds in which managers held positions also had better past performance and below-average fees.

Managers of the Kiplinger 25, our favorite no-load funds, aren't afraid to taste what they serve investors. All but two of the 25 report investment by some managers, and 13 have managers who have invested more than $1 million in their own funds. The exceptions, Harbor Bond and Masters' Select Equity, are run by cream-of-the-crop managers from other firms who have money in similar funds.

Vet your funds

Obtaining manager-investment data isn't hard. You can find it in the fund's statement of additional information, a filing that you can usually find on a fund's Web site. If you can't locate the SAI, ask the fund's sponsor for it. Give extra credit to managers who have skin in the game, but don't necessarily avoid funds whose managers have invested little or nothing. It would be silly, for instance, to get overwrought that the manager of an index fund is not investing in the fund. There's little he or she could do to improve the return of a fund that simply tries to match its benchmark.

Manager stakes: Smaller potatoes

The majority of managers who run funds in the Kiplinger 25, our favorite no-load funds, have at least $1 million of their own money in the funds. Those listed below have $500,000 or less in their funds. The outsiders who run Harbor Bond and Masters' Select Equity have money in the primary funds they run.

Bridgeway Aggressive Investors 2 John Montgomery $100,001-$500,000
Bridgeway Small-Cap Growth John Montgomery 10,001-50,000
CGM Focus Ken Heebner 100,001-500,000
Fidelity Floating Rate High Income Christine McConnell 10,001-50,000
Marsico International Opportunities James Gendelman 100,001-500,000
T. Rowe Price Real Estate David Lee 100,001-500,000
SSgA Emerging Markets Brad Aham 50,001-100,000