When a fund manager flees, should you?

By Lisa Gibbs, Money Magazine senior writer


(Money Magazine) -- Navigating a choppy market is hard enough. Making matters worse is the fact that some of the most respected skippers in the fund industry are leaving the portfolios they've helmed for years.

Among them are FPA's Robert Rodriguez, Morningstar's 2008 bond manager of the year, who's on sabbatical, and Jack Laporte, who's retiring after a successful 22-year run at T. Rowe Price New Horizons.

When managers shove off, should you go too? It depends on the circumstances. So ask yourself the following questions:

1. Why is the manager leaving?

Sometimes a manager is forced to leave because his performance was poor, in which case you might be happy to see him go. But there are times when managers with stellar records exit, which can lead to discontinuity at the fund.

Take TCW, which recently fired star bond manager Jeffrey Gundlach, accusing the head of TCW Total Return Bond of trying to start a rival firm. While TCW acquired Metropolitan West to replace Gundlach and his 40-person team, the resulting fund won't be exactly the same.

Gundlach, for example, was known for making aggressive bets on either high- or low-quality mortgage bonds. So if you invested in the fund for that specific style of management, you may want to switch.

2. Was your manager part of a system?

A good example is the legendary value-investing shop Tweedy Browne. When senior adviser Christopher Browne died in December, he left behind a team whose tenures range from 19 to 36 years.

Similarly, while Rodriguez is gone this year, co-managers at FPA New Income and FPA Capital will soldier on.

Morningstar's Russel Kinnel cites T. Rowe Price and Dodge & Cox as other firms with a cohesive approach. Contrast that with Fidelity, he says, where "a manager change almost always means a strategy change."

Indeed, when Larry Rakers took over Fidelity Dividend Growth in 2008, he turned a mega-cap fund into a portfolio that invests in small-, mid-, and large-cap shares.

3. What are the tax implications?

If you're investing outside a 401(k) or an IRA, the tax consequences of a manager switch can be tricky.

For example, if your manager is replaced by a stock picker who overhauls the fund, that trading could lead to a taxable gains distribution later in the year (they usually come at year-end).

But if you choose to sell a fund where a transition is orderly, you could be the one triggering an unnecessary tax bill. This is an argument for taking it slow -- and seeing how the transition unfolds before making a hasty move.  To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Overnight Avg Rate Latest Change Last Week
30 yr fixed4.07%4.07%
15 yr fixed3.13%3.09%
5/1 ARM3.22%3.08%
30 yr refi4.12%4.12%
15 yr refi3.19%3.16%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Index Last Change % Change
Dow 17,659.60 302.73 1.74%
Nasdaq 4,730.48 86.17 1.86%
S&P 500 2,047.59 34.70 1.72%
Treasuries 2.22 0.07 3.12%
Data as of 1:43pm ET
Company Price Change % Change
Bank of America Corp... 17.44 0.18 1.07%
Apple Inc 111.87 2.46 2.25%
Oracle Corp 44.56 3.40 8.26%
General Electric Co 24.97 0.54 2.21%
AT&T Inc 33.28 0.61 1.87%
Data as of 1:28pm ET

Sections

Sony may have pulled its controversial film 'The Interview', but North Korean citizens may soon have copies dropping from the sky. More

With two recent IPOs and a digitally-inclined audience of entrepreneurs, non-traditional financing could finally get its big break. More

Payday lenders are spending millions of dollars in Washington in an attempt to get powerful politicians on their side as a government crackdown on the industry heats up. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.