Evaluating Manager and Fund

A mutual fund's portfolio- or fund manager is responsible for implementing the fund's investment strategy by researching and selecting the specific securities that will be bought and sold in the portfolio. The manager can be a single individual or a team of investment advisors. In most instances, the manager is employed by an investment advisory organization that is either a wholly owned subsidiary of the fund's sponsor or an outside advisory company. The manager runs the fund in accordance with the investment objectives stated in the fund's prospectus. They must also abide by any restrictions set forth as to the types of investments that can and can't be traded in the fund's portfolio, which are also detailed in the prospectus.

The organization of the people within an investment advisory can vary. In some firms, a portfolio manager works alone, handling only one mutual fund. In others, an individual fund manager may be responsible for two or more funds within the same sector or related business sectors, or with complementary investment objectives. When a team of managers is in charge of a mutual fund, one or two are usually designated as lead managers. These leaders are generally very experienced senior advisors who supervise the activities of junior managers as well as researchers and analysts. They also work closely with new investment professionals in order to teach them the business before they're assigned funds of their own.

Each investment manager's professional experience must be disclosed in the fund's prospectus. The length of time in which the manager or management team has been in charge of the particular fund is documented, along with all other mutual funds that each manager has run previously, as well as each manager's education. This information is important to know, especially if the current fund is actively managed (in other words, the manager decides which securities are bought and sold for the fund's portfolio). It can be used to determine what period of the fund's performance has been under the direction of that specific individual or team. Additionally, if previous funds have been managed, the performance of those during the advisors' tenure can also be evaluated. Furthermore, a judgment can be made regarding the manager's overall depth of experience in the investment markets. All of these valuations can help the prospective investor to gauge the talent and expertise of the manager or management team.

When evaluating a fund manager (or team), the investor should seek an experienced adviser with a proven track record of producing consistent results in good and bad markets. Generally speaking, the longer a manager has been successfully in charge of a mutual fund, the better. Experience, tenure, and consistency of returns are of major importance.

An investment advisory firm earns a management fee for its services. The specific person or team of people who manage the fund usually receive a base salary in addition to a bonus tied to the fund's total return. The management fee is an annualized expense based on the total amount of assets under management, and is deducted from the fund in small daily increments. When choosing a fund for investment, it is absolutely imperative that these charges also be closely evaluated.

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