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Investors Should Look for Funds With Big Manager Stakes
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Mutual fund investors may want to restrict their purchases to funds whose managers eat their own cooking, says a new report by Morningstar Inc.
The mutual fund analysis service looked at the levels of fund ownership by their managers and found those who put more than $1 million of their own money into their funds out performed their peers.
"The best managers that we've followed and respect a lot tout the fact that they're investing alongside investors", Karen Dolan, director of fund analysis for Morningstar, recently told Investment News.
She found that managers with a million or more in their funds ranked on average in the 42nd performance percentile over the five years ended in July, beating 58 percent of peer funds
Meanwhile, Dolan said the analysis found that slightly more than half of mutual fund managers invest nothing at all in their own mutual funds.
Morningstar found that only 413 funds out of 4,383 had more than 1million in investments by their managers. Another 876 funds had manager stakes of between $100,000 and $999,999, the study found.
Dolan said the company is not yet sure whether ownership levels affect fund performance but she thinks further study will show there is a relationship.
Although there are certain cases where managers have legitimate reasons for not investing in their own funds, in most cases there is no reason why they can't.
Younger managers who have not built up significant wealth may not have $1 million to invest, but they should at least have something in the game, Dolan said.
How you define that could vary but it's something more than zero she said. Some funds have begun paying bonuses in fund shares to avoid bad publicity.
©OSB Financial Services, INC
©2009, Kelly Ruggles Web site
Kelly C. Ruggles is a fee-based financial planner located in Spokane.
Kelly C. Ruggles, President of American Reliance Group, Inc., a registered investment advisor.
Kelly C. Ruggles does not intend to provide personalized investment advice through this publication and does not represent the strategies or services discussed are suitable for any investor. Investors should consult with their financial advisors prior to making any investment decisions
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