Who's Minding the Fund?

Single managers versus teams - know which works best for you

When Ann Matthews decided to invest in a mutual fund, the last thing on her mind was how many managers it had: one, two, or even a committee plotting the investment strategy.

"I just wanted to buy a fund that had performed well and was expected to make more money," she says.

"Exactly how the fund came by its [performance] numbers was not a primary concern to me," says Ms. Matthews, a part-time worker in central New Jersey. She eventually settled on a team-led fund offered by her company, a large retailer.

Her lack of interest in the finer points of fund management is probably typical of most individual investors.

But you might give it some thought. Single-manager funds, for example, depend on the expertise of one person. If that person leaves, his departure could disrupt the continuity of investment strategy.

Debate within the fund industry over which management style delivers the best performance is heated.

A single manager fund is run by one person. Sometimes that person becomes a "superstar," such as Peter Lynch, who blew performance numbers through the roof with the Fidelity Magellan Fund (800-544-8888) ... and then retired.

His retirement underscores one of the problems with single-manager funds. When he left Fidelity, Mr. Lynch took the great performance numbers with him.

A co-managed fund uses two or more managers. Example: the Massachusetts Investors Trust (800-637-2929), the oldest mutual fund in the US. (See box.)

A group-led fund leans on several managers, from a handful to several dozen; 26 analysts, for example, call the shots at MFS Research Fund (800-637-2929).

At index funds, which invest in a benchmark such as the Standard & Poor's 500, a computer makes most of the decisions, although the fund may list a manager.

"Most people probably don't inquire as to how their fund achieved its results," especially if they're looking back over four or five years, says Michael Lipper, president of Lipper Analytical Services, New York. "But if they want to know what to expect from the fund in the years ahead, then [it] becomes an important issue."

Management style may be especially important in a downturn, when fund leaders are under stress. But recent statistics "lack a downside," says Mr. Lipper, with no major bear market since the 1970s.

Nonetheless, mutual funds are increasingly shifting away from single managers. Banks are buying fund companies, and bankers are group-oriented, Lipper says.

Some fund companies also worry about superstar managers bolting for another company. Will he take clients with him? Fund companies also find that a group approach provides greater continuity.

Teams also tend to be less susceptible to workload pressures, says Lawrence Solomon, statistics editor for the No-Load Fund Investor newsletter.

According to Mr. Solomon, one study late last year suggests that teams may outperform individual managers over time periods between three and 15 years.

Among the top team-led funds listed by The No-Load Fund Investor:

* Twentieth Century Giftrust. Five-year, annualized return: 25.1 percent through July 18 (800-345-2021);

* Kaufman Fund. Five-year return: 23.7 percent through June 30 (800-261-0555);

* SteinRoe Capital Opportunities. Five-year return: 21.23 percent through June 30 (800-403-0552).

For some insight into the relationship between style and performance, the Monitor asked Morningstar, a Chicago provider of fund information, to crunch numbers on 3,504 domestic equity funds, including specialty funds.

The majority - 1,925 funds - use one manager; 1,393 use a team. The rest Morningstar couldn't categorize.

The difference? Not much. Through July 18, of 1,925 single-manager funds, 1,617 posted an average total return of 16.52 percent. For the 1,393 team-run funds, 1,201 gained 16 percent.

But remember, we're in an "up" market, a rising tide that lifts most funds.

Whether your fund is managed by a team or an individual, "know the track record of your fund over a long period of time," says a Morningstar analyst.



* For single managers, find out the track record. Has the philosophy remained consistent with actual investing? A shift in strategy suggests performance problems, or that the manager sees problems ahead. (Visit the library for ValueLine or Morningstar reports on track record.)

* If a longtime manager is replaced, find out why - from news reports, or call the fund: retired, fired, or hired away?

* Management style is more important with fund groups that charge commissions than no-loads (no commission). Once you pay the load, you've committed at least 5 percent of your initial investment, so it's expensive to leave.

* Find out if your fund has formally changed its objectives in the past year or so. Has it gone from a single manager to a team? Why?

* Try to determine a fund's track record during a downturn. This may be difficult, since many managers are too young to have wintered a bear market, but at least make certain your fund has the durability suggested by its promotional literature. Some funds project performance results backwards - how the fund would have performed over the last 10 years - even though they're only a year old.

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