When a Favorite Fund Manager Departs
Shifts at Yacktman and Matthews funds bring uncertainty
Other than lost money, almost nothing upsets a fund investor as much as news that a favorite manager is departing — or is relinquishing some of his or her responsibilities on a fund.
So I wasn’t pleased to learn that Stephen Yacktman had taken over from his father, Don, as sole chief investment officer of Yacktman Fund (symbol YACKX) and Yacktman Focused Fund (YAFFX). I’ve been interviewing Don, who will turn 72 in September, for more than 20 years, and I’ve come to consider him one of the mutual fund industry’s most talented stock pickers.
Nor was I happy to hear that Jesper Madsen is no longer co-manager of Matthews Asia Dividend (MAPIX) and is leaving the firm that runs the Matthews funds on October 31. Madsen is a savvy and resourceful investor, and the fund will miss him. (Asia Dividend is closed to new investors, but its close sibling, Matthews Asian Growth & Income (MACSX), is open and is a member of the Kiplinger 25. Madsen left that fund in 2012.)
Anytime a key manager leaves or steps back a bit, as Don Yacktman is doing, you have to view the fund with a little more skepticism. If performance dips over the following year or two, I’d be more likely to sell the fund than I would otherwise.
At the same time, over the years I have come to believe that well-conceived investment strategies, such as those practiced by the Yacktman and Matthews Dividend funds, can be learned — if the environment is right. Consider the companies that run the American and Primecap funds. The senior people at both firms have imparted their methods and wisdom to those in the next generation and those in the generation after that. Both American and Primecap boast funds that are standouts today and will likely remain standouts for years to come.
What about Yacktman and Matthews? Yacktman is an easy decision. Stephen Yacktman, 43, helped set up the firm in 1992 and has been listed as co-manager of Yacktman Fund since 2002. (I prefer Yacktman Fund over Yacktman Focused because its expenses are lower.) He was co-chief investment officer with his father for many years. Jason Subotky, a college friend of Stephen’s, started with the firm in 2001. Subotky has been deeply involved since then, although he has only been listed as a co-manager since 2009.
And Don isn’t going anywhere. “I’m not retiring,” he says. He remains a co-manager. “I’ll be in the office every day. But my role is more of a questioner than a stock picker. I ask, ‘Have you thought of this? Have you considered that?’ ”
Stephen puts it well: “If you’ve been happy with us over the last decade, why change?”
Look at the record. Yacktman Fund has returned an annualized 11.2% over the past ten years — an average of 3.8 percentage points per year better than Standard & Poor’s 500-stock index and good enough to rank in the top 1% among funds that focus on large companies with a blend of growth and value attributes. What’s more, the fund has been 25% less volatile than the S&P 500 over the past three years. (All returns in this article are through August 22.)
The final plus for me is that Don Yacktman comes across as a patient man who enjoys nothing more than teaching his methods to his successors. “My role has been to teach them the critical variables, then get out of the way,” he says.
Matthews is a tougher call. I don’t know Madsen nearly as well as Yacktman. But my sense is that the fund’s success has been due more to its strategy than its execution. It invests only in dividend-paying companies based throughout Asia, both in developed markets, such as Australia and Japan, as well as in emerging markets.
Another huge plus is that Asia Dividend has many similarities with Matthews Asian Growth & Income — and the two funds have superb and somewhat similar records. Over the past five years, Asia Dividend has returned an annualized 11.7%, while Asian Growth & Income has returned an annualized 8.1%. By contrast, the MSCI All-Country Asia Pacific Index, which tracks developed and emerging markets in the Far East, returned only 4.4% annualized over the same period.
I like Matthews. I think it’s a well-run firm that fulfills its mission of providing good Asia funds. Robert Horrocks, who co-manages Growth & Income with Kenneth Lowe, will now also co-manage Asia Dividend with Yu Zhang. Horrocks has been co-manager of Growth & Income since 2009.
My confidence in Yacktman is higher than in Asia Dividend. But my hunch is that a year or two from now, both funds will still be winners.