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.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
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.
FUND | MANAGER | INVESTMENT RANGE |
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 |
To continue reading this article
please register for free
This is different from signing in to your print subscription
Why am I seeing this? Find out more here
-
Stock Market Today: Stocks Pop Then Drop After Fed Meeting
Stocks went on a roller-coaster ride after Fed Chair Powell said interest rates were likely at a sufficiently restrictive level.
By Karee Venema Published
-
Fed Holds Rates Steady at 23-Year High: What the Experts Are Saying
Federal Reserve The Federal Reserve struck a dovish pose even as it kept interest rates unchanged for a sixth straight meeting.
By Dan Burrows Published
-
Best Banks for High-Net-Worth Clients
wealth management Kiplinger's 2023 list of the best banks for higher-net-worth clients.
By Lisa Gerstner Published
-
Stock Market Holidays in 2024: NYSE, NASDAQ and Wall Street Holidays
Markets When are the stock market holidays? Take a look at which days the NYSE, Nasdaq and bond markets are off in 2024.
By Kyle Woodley Last updated
-
Stock Market Trading Hours: What Time Is the Stock Market Open Today?
Markets When does the market open? It's true the stock market does have regular hours, but trading doesn't necessarily stop when the major exchanges close.
By Michael DeSenne Last updated
-
Bogleheads Stay the Course
Bears and market volatility don’t scare these die-hard Vanguard investors.
By Kim Clark Published
-
I-Bond Rate Is 5.27% for Next Six Months
Investing for Income I-Bonds issued November 1, 2023 through April 30, 2024 will have a rate of 5.27%.
By David Muhlbaum Last updated
-
What Are I-Bonds?
savings bonds Inflation has made Series I savings bonds enormously popular with risk-averse investors. So how do they work?
By Lisa Gerstner Last updated
-
This New Sustainable ETF’s Pitch? Give Back Profits.
investing Newday’s ETF partners with UNICEF and other groups.
By Ellen Kennedy Published
-
As the Market Falls, New Retirees Need a Plan
retirement If you’re in the early stages of your retirement, you’re likely in a rough spot watching your portfolio shrink. We have some strategies to make the best of things.
By David Rodeck Published