Mutual Fund Comparison: Talent

When you conduct a mutual fund comparison, you may want to take into account some intangible factors in addition to statistics. You can rate a fund based on standard deviation, volatility and beta, but at the end of the day, you just want a fund managed by an individual you can trust with your investments. Most mutual fund purchasers are not looking to make risky, wealth-building moves. Instead, they are looking to grow an income and protect their savings. The talent of your fund's manager can be a significant factor in your comparison.

Mutual Fund Style

You can pick a mutual fund based on the style of its managers. Essentially, a fund's prospectus will give you insight into the general way the manager approached decisions. Is the fund distributed into many different industries or does it concentrate on one industry? Which benchmarks do the fund managers use to track their performance? Do they measure returns on an absolute scale or a relative scale? These items can give you insight into whether the fund's managers think like you do and share your priorities. Even if a fund has an excellent record on paper, it will not be the right choice for you if the managers do not share your investment priorities.

Passively vs. Actively Managed Funds

The style you prefer in a fund manager is up to you, but it is worthwhile to consider the difference between passive and active managers. Passive managers tend to let a fund ride out small ups and downs in the market. They aim to keep transaction fees low by only acting when a specific purpose is explicitly laid out. Active managers try to manipulate performance by making more trades and changes. On the whole, passively managed funds are more popular. Consider this as a factor when you evaluate the talent of your fund managers. 

Style Drift

If you like the style of a specific fund, you should see how consistent that style has been over time. Some analysts use the term style drift to describe the tendency of a fund to change its approach. A fund with a lot of style drift may give in too much to outside pressures such as investor demands or market trends. Some changes in style are necessary due to market shifts. On the whole, though, most investors would prefer to have limited to no style drift in order to keep their priorities straight.

Loyalty to Fund Manager

You may be very loyal to a specific fund manager who has given you great returns in the past. If this fund manager switches funds, you may have the thought that you should go with him or her. In this case, it is best to wait it out to determine if the new manager of your fund will be a solid replacement. If so, save yourself the change fees and stick with the new guy. If you feel the fund will take a turn for the worse under the new direction, consider your options to move on based on whether you are in a closed or open fund.

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