Best Fund Groups Retain Their Managers, Style T. Rowe Price, Capital Research Lead Crowded Field
In the mutual fund business, the motto that’s been working best is “if it ain’t broke, don’t fix it.”
Capital Research & Management Co. and T. Rowe Price Associates Inc. stand out as winners in an industry where funds change managers a lot, and rarely stick to one investment style, according to an industry report.
Los Angeles-based Capital Research’s American Funds and Baltimore’s T. Rowe Price are the best “at retaining talent and keeping their funds predictable,” said Susan Paluch, an analyst at Chicago-based Morningstar Inc. and the author of the report.
“Linus would swap his blanket for an American fund,” Paluch said. The average American Funds manager has held the same job for almost a decade. “The family earns an ‘A-‘ for style consistency,” she said of the firm whose biggest funds in terms of assets are Investment Co. of America, which returned 19.4 percent last year, and Washington Mutual Investors, which returned 20.2 percent last year.
Fidelity Investment, the world’s biggest fund company, by contrast, earns a D+ in style consistency from Morningstar.
T. Rowe Price’s managers have been at their jobs for more than six years on average, and by giving its funds names like Mid-Cap Growth and Small-Cap Value, the company makes a point of sticking with a defined investment objective, Paluch said.
“To top it off, T. Rowe Price’s funds are among best-returning and lowest-risk funds in their categories,” Paluch said. T. Rowe Price was singled out by Morningstar in December as the best manager of domestic stock funds.
Boston-based Putnam Investments also ranks high in the Morningstar survey. The median manager tenure at Putnam is just three years, but the company’s funds stick to strict style parameters, Paluch said.
“Because Putnam’s funds are managed by teams and are tightly defined, manager changes have little effect on how the funds are run,” Paluch said.
In contrast, Fidelity relies on “star” managers to lead its funds. The fund group has lost more than 15 fund managers since the start of 1996, including veterans such as Jeff Vinik, Larry Greenberg and Brian Posner.
Fidelity, Dreyfus Corp. and Zurich Kemper Investments Inc. are among the industry’s worst in terms of high manager turnover and “inconsistent” funds, according to Morningstar.
Inconsistency in style is among the sins that cost Fidelity’s Magellan fund, the world’s biggest mutual fund $5.6 billion last year and another $1.36 billion this year. Many clients, who thought they were getting an aggressive growth fund, fled when they saw the fund had grown top-heavy with bonds. Magellan returned 11.7 percent last year.
Fidelity took steps last March to address concerns about whether the funds were sticking to their investment objectives when it realigned its equity group into eight investment groups, Paluch said.
Dreyfus and Kemper also say they’re dedicating themselves to creating well-defined, predictable funds after several manager departures.