Multiple Managers May Help Lift a Fund
Sunday, September 2, 2007
NEW YORK -- Two isn't always more than one.
With mutual funds, whether two managers are better than one depends on the fund.
It's no surprise that many funds run by a lone portfolio manager produce enviable returns. Legg Mason's Bill Miller has for years famously outmaneuvered a range of markets to turn in strong results. But funds that in some cases employ small armies of managers can also demonstrate impressive success. Some use a team approach, relying on several people to run the same fund, while others divvy up parts of a fund or fund family and give each manager an area of responsibility. American Funds, for example, uses multiple managers and has shown strong results.
Although none of the approaches appears to be a clear winner, the notion of tapping the expertise of more than one person to steer a fund has its backers.
"You get a benefit from having more than one person looking at the market on a regular basis," said Wyatt Crumpler, vice president of trust investments at American Beacon Advisors. "It tends to lower the volatility of the funds."
The Beacon funds uses outside managers to oversee its funds and then monitors their performance in what is often referred to as a manager of managers approach.
It's not a new idea but one that Crumpler contends works by harnessing a range of expertise. The American Beacon Large Cap Value Fund, for example, is 20 years old and is run by a stable of managers. With about $7.82 billion in assets, its year-to-date return is about 4.5 percent. Its three-year annualized return is nearly 15.67 percent, while its five-year annualized return is 15.52 percent.
Crumpler said keeping fund managers near makes it easier to monitor a fund's performance using strictly objective measures.
"All we have to do if we have a manager that's underperforming is terminate the relationship and bring in somebody new or switch the funds to one of the existing managers," Crumpler said. Granted, it's not something Beacon finds it necessary to do often.
Paul Alan Davis, a portfolio manager at Charles Schwab Investment Management, oversees three funds that are part of a group of nine.
"The combination is good because we can see what's happening from different schools of thought," he said of the experience brought by each of his fellow managers and the manager overseeing all nine funds.
"I think we're also more involved with process, which tends to be more repeatable and reliable," he said. "I would say maybe a team approach would lend itself more to less drift in terms of style size and lower turnover to some degree."
While using more than one person might help managers hew to a fund family's overall philosophy and not bend to an individual's preferences, Crumpler said some investors are critical of such an approach out of concern the funds will be too rigid and resemble little more than index funds. And that's of course without the generally lower fees of index versus managed funds.
However, he dismisses the concern, arguing that the funds are still nimble enough to make deft moves and that the philosophy itself is beneficial.
"It's not really a philosophy that will lead us to mimicking an index."
Investors in funds that use a team approach might take comfort knowing it is perhaps easier to maintain continuity even as leadership changes, said Jeff Tjornehoj, an analyst at fund tracker Lipper.
"There are many firms that like the teams approach," he said. "There is a bit more consistency. They can pass along their philosophy. You don't really feel like your portfolio is going to change overnight just because one person retires. There is always somebody on deck."